Starting in April, I’m returning to my roots to invest in and help grow the next generation of startups. I’ll be focused on consumer startups, bottoms up SaaS, marketplaces, and more – utilizing my expertise in growth to launch and scale new companies. Incredibly excited.

How this came together tells you a lot about Marc and Ben, and how Silicon Valley works. I moved to the Bay Area in 2007, as a first time founder with a lot of energy and a lot of questions. I spent the first year meeting everyone I could, reading everything about tech, and writing down all that I was learning. A few months in, I was shocked to get a cold email from Marc introducing himself. Who knew that sort of thing happened? My blog was pretty much anonymous and I could be anyone – but he reached out to talk ideas, which made a big impression. I learned a lot about Silicon Valley that day.

Marc soon introduced me to Ben, and together, they provided a regular stream of advice/ideas/frameworks over breakfasts at the Creamery, Hobee’s, Stacks, and other assorted Palo Alto diners. I was a first-time founder, and the real-life entrepreneurial experiences they relayed – on fundraising, finding product/market fit, hiring, and much more – proved to be insanely helpful. My startup ultimately didn’t work out and the team soft-landed at Uber, but I always remembered the incredible support from Ben and Marc.

Andreessen Horowitz is a firm built on the same core values I saw first-hand. The investing team has a deep empathy for entrepreneurs that reflects their extensive operating experience. The partners on the operating team are incredible and enable the firm’s unmatched support of founders and their companies. For all of these reasons and more, I’m thrilled to join the a16z team.

A decade ago, I learned how impactful it can be when a couple experienced entrepreneurs reach out to a new founder. I can’t wait to close the loop by doing the same – working with new founders and their startups, and helping build the next generation of tech companies.

As excited as I am about the next step, I’m also sad to leave an extraordinary team and experience behind at Uber. I have nothing but admiration for the talented, passionate people who are working hard to ship all the amazing innovations that are coming down the queue. To all my friends and colleagues at Uber, thank you for the amazing two and a half years.

Finally, to the readers of this blog: I’ll be writing much more! The new job will let me put down a lot of what I’ve learned over the past few years. I’m excited to share ideas and stories from across companies and industries with all of you! Looking forward to it.

]]>Hello 2018! Books, essays, and more from the past year.http://andrewchen.co/hello-2018-books-essays-and-more-from-the-past-year/
Wed, 31 Jan 2018 18:00:03 +0000http://andrewchen.co/?p=4191Dear readers, 2017 was a big year, where we got Trump’s first(!) year in office, a renaissance in interest around cryptocurrencies, Brexit, Puerto Rico, and oh yeah, things got a little crazy at Uber too. I want to take a moment to share some of my writing from the past year, a few books I’ve […]

2017 was a big year, where we got Trump’s first(!) year in office, a renaissance in interest around cryptocurrencies, Brexit, Puerto Rico, and oh yeah, things got a little crazy at Uber too. I want to take a moment to share some of my writing from the past year, a few books I’ve read recently, and also include stuff from the last year just for completeness. One of my 2018 goals is to spend more time writing – stay tuned for that – and am looking forward to sharing some incredible learnings I’ve gotten from Uber over the past few years.

As always, thank you again for reading!

Andrew
Hayes Valley, San Francisco, CA

Essays from 2017

Startups are cheaper to build, but more expensive to grow – here’s whyLots of important trends – cloud computing, open source, etc. – are making it cheaper to start a company. However, growth is getting harder and more expensive because of consolidation, making paid acquisition one of the few channels that still work. Startups are responding by raising more money, monetizing earlier, trying paid channels, and experimenting with referrals instead of virality.

VIDEO: Three things you need to know to raise money in Silicon ValleyI spoke to an audience of French entrepreneurs and tech folks, and explained some of the key lessons from watching startups raise money in San Francisco versus elsewhere. This means focusing on a big story, growth trajectory (versus today’s metrics), respecting differing investor motivations, etc. This is a short video and hope you enjoy it!

How to build a billion-dollar digital marketplace – examples from Uber, eBay, Craigslist, and moreMarketplaces are magical because they both have network effects as well as clear monetization. This means that often when a niche marketplace works, it can grow into adjacent niches quickly. To grow to beyond an initial vertical, startups have to think about expanding geos, adding new products and price points, decrease friction, and grow demand+supply stickiness. I use examples from the major marketplaces to make my points. More to come on this topic!

10 years of professional blogging – what I’ve learnedExpanding on a tweetstorm, this essay breaks down the key lessons I’ve learned from running a professional blog over the last 10 years. This includes how to write content – opinion-driven, please! – and why writing is the best possible networking activity ever.

Books I started reading in 2017

I originally titled this section “Books I read in 2017” but I probably started more books than I actually finished :) Here’s a collection.

Superforecasting
Whenever you read a New York Times political column with a bunch of predictions – Trump is gonna do this! Saudi Arabia is gonna do that! – it’s entertaining, but who’s keeping track of these forecasts? This book covers the academic work of Philip Tetlock from UPenn, who puts together a forecasting competition and tracks who’s good at making these predictions. Lots of interesting learnings and relevant to those making startup investments also! Here’s a NYT article on the foxes versus hedgehog strategies for prediction, btw.

Venture Capitalists at Work: How VCs Identify and Build Billion-Dollar Successes
I read this awhile ago, but picked it up again and read more of the stories. It’s a series of interviews with many of the top venture firms – Floodgate, Founders Fund, First Round, Softbank, CRV – and the companies they’ve invested in. Each interview has a nice discussion and amount of detail. I found this much more compelling than many of the other books I’ve read on VCs, which remain a bit too high-level and adulating.

Reset
Ellen Pao’s story of her time at Kleiner Perkins, Reddit, and more. So much to learn from this experience.

The Ascent of Money
Sapiens for money :) Traces the history of money, the role it’s served over time, and the development of some of the major aspects of our modern financial system. Can’t wait for this to get revised for all the crypto stuff that’s happening now.

The One Device
History of the iPhone. Didn’t read this yet, but I love these recent tech history books.

Principles
Reading this because everyone else is too :) Lots of insights/lessons from Ray Dalio, one of the world’s best hedge fund dudes.

Area X
The director of my recent favorite movies – Ex Machina – is making a new movie starring Natalie Portman and a bunch of badass ladies exploring a strange, genetic-mutating world secured by the military. Reading the book ahead of time, before I see the movie! Here’s the trailer to the upcoming film.

Featured essays from 2016

10 years in the Bay Area – what I’ve learnedI’ve lived here for the last decade, and have learned a ton of about this region’s entrepreneurial drive, the unique culture, and wonderful folks. I wanted to share a couple lessons learned here.

What’s next in growth? (Presentation at Australia’s StartCon)Last year I presented this talk on how marketing has evolved over the last century, and how many of the ideas we think of as “growth” today are actually based on concepts from decades ago. I use this to talk about future platforms and where this might all go.

Uber’s virtuous cycle. Geographic density, hyperlocal marketplaces, and why drivers are keyIn my last two years at Uber, I’ve learned a ton about the flywheel that makes Uber’s core business hum and grow incredibly fast. In this essay I draw from Bill Gurley’s essays on network effects, the labor market for part-time workers (aka drivers, “the supply side”), and how surge works within the company. A lot has evolved/changed since I’ve written this, but it’s a good overview from my first year of learnings.

]]>10 years of professional blogging – what I’ve learnedhttp://andrewchen.co/professional-blogging/
Mon, 18 Dec 2017 17:30:07 +0000http://andrewchen.co/?p=41821/ After 10+ years of publishing professional writing at https://t.co/ddc2F89IIV, I have a couple opinions on how to get your stuff read — Andrew Chen (@andrewchen) July 26, 2017 Building your personal bat signal I want to cross-pollinate a tweetstorm on lessons I’ve learned from a decade of professional writing. In a way, it’s a followup […]

Building your personal bat signal
I want to cross-pollinate a tweetstorm on lessons I’ve learned from a decade of professional writing. In a way, it’s a followup to some more general life lessons from 10 years of living in the Bay Area. Writing has been enormously impactful from a professional standpoint, and I continue to recommend to everyone – especially folks who are new to the Bay Area – to do it as a way to send out the “bat signal” on their aspirations, ideas, and interests.

It’s awesome, but insanely hard to get started. Of course, everyone knows the mechanics of setting up a blog – but the hard part is finding your voice, figuring out topics that are interesting for other folks to read, and building a long-term habit.

The lessons
Without further ado, here are a few opinions I’ve developed up along the way:

Titles are 80% of the work, but you write it as the very last thing. It has to be a compelling opinion or important learning

There’s always room for high-quality thoughts/opinions. Venn diagram of people w/ knowledge and those we can communicate is tiny

Writing is the most scalable professional networking activity – stay home, don’t go to events/conferences, and just put ideas down

Think of your writing on the same timescale as your career. Write on a multi-decade timeframe. This means, don’t just pub on Quora/Medium

Focus on writing freq over anything else. Schedule it. Don’t worry about building an immediate audience. Focus on the intrinsic.

To develop the habit, put a calendar reminder each Sunday for 2 hours. Forced myself to stare at a blank text box and put something down

Most of my writing comes from talking/reading deciding I strongly agree or disagree. These opinions become titles. Titles become essays.

People are often obsessed with needing to write original ideas. Forget it. You’re a journalist with a day job in the tech industry

An email subscriber is worth 100x twitter or LinkedIn followers or whatever other stuff is out there. An email = a real channel

I started writing while working at a VC. They asked, “Why give away ideas? That’s your edge.” Ironic that VCs blog/tweet all day now ;)

Publishing ideas, learnings, opinions, for years & years is a great way to give. And you’ll figure out how to capture value later

But let’s talk about each one of these in more detail.

The lessons, but with more detail!

Titles are 80% of the work, but you write it as the very last thing. It has to be an compelling opinion or important learning

Titles are often written as a vague pre-thought, but in fact, it’s the most important creative decision you’ll make. Titles are the text that’ll be featured prominently in every tweet, Facebook share, and link – and people will refer to it by name. Titles are best when they can pass the “naked share” test – imagine some text that’s so compelling that even if it’s not linked to anything, people will want to share it.

The best example of this in my work is “Growth Hacker is the new VP Marketing” which started out as a tweet with 20+ shares, and then was developed into an essay afterward. To pass the naked share test, this means a title should be an opinion on its own. Or be a factoid (like push notifs being 40%+ CTR) that’s fascinating and shareable. Or if that’s just too hard, the common “curiosity gap” pattern of a listicle can work too. Just avoid vague titles like “Here are my thoughts on XYZ.” No one cares. As a result, in the course of my work, I often write a placeholder title, write the essay, and then at the very end, spend a good chunk of time iterating on titles until there’s a good one.

There’s always room for high-quality thoughts/opinions. Venn diagram of people w/ knowledge and those we can communicate is tiny

You might think that there are too many blogs on tech, startups, whatever. There’s always room though, when you think of the whitespace as Knowledge x Communication x Medium. People with real knowledge are busy, especially when that knowledge is under a huge amount of demand. And even when an expert can poke their heads up and do something besides executing their craft, they often can’t communicate! It’s hard to make professional content – often dry, boring, technical – into something that’s compelling and accessible to a wide audience. And furthermore, I’d add the medium into the mix as a third dimension, which is the idea that the knowledge can be shared via video, long-form essays, podcasts, presentation decks, etc. Even when there are experts writing long-form content about cryptocurrencies, let’s say, there’s still room in the market for a highly visual version. Just figure out the whitespace and dive in!

Writing is the most scalable professional networking activity – stay home, don’t go to events/conferences, and just put ideas down

When I first moved to the Bay Area, I was spending at least one afternoon/evening a week at a launch party, a conference. Plus hours and hours of 1:1s as I was meeting a ton of people. After an entire year of hard work, I had met something like 1000 new people for one-off conversations. But it took hundreds of hours. At the same time, I was dedicating about the same amount of time to writing, but quickly unlocked 5,000+ people, and started reaching into their inboxes on a weekly basis.

Speaking at conferences is the worst time suck. You spend hours prepping a deck, speak to a group of perhaps a few hundred people, and retain very few them in any meaningful relationship. It can feel good to be recognized, but at the same time, it just can’t compare to writing a piece of content that lives forever. I’m still getting traffic – and email feedback – on essays I wrote ten years ago, which is insane! But that’s the power of scale – nothing can beat content as a bat signal.

Think of your writing on the same timescale as your career. Write on a multi-decade timeframe. This means, don’t just pub on Quora/Medium

Building your network, your audience, and your ideas will be something you’ll want to do over your entire career. Likely a multi-decade thing that will last longer than any individual publishing startup. That’s why I refuse to write on Medium or Quora. Instead, I prefer to run open source software that I can move around, prioritize building my email list (more on that later) and try to keep regular backups. I used to write on Blogger and watched them slowly stop maintaining the platform after the Google acquisition. Then I switched to Typepad, only to watch the same thing happen. I learned my lesson.

Focus on writing freq over anything else. Schedule it. Don’t worry about building an immediate audience. Focus on the intrinsic.

I get it- the activation energy to start publishing your professional ideas and thoughts are high. Nevertheless, because initially no one will read your work, the key is just to get started. Your initial topics and format should be whatever you can do easily and maintain some sort of frequency. Maybe that’s 500 words a month on a new product you’ve tried, and whether you hate or it not. Just get started, find out what you like, and you’ll have a lot of time to figure out the intersection of what you want to write, and what others want to read.

To develop the habit, put a calendar reminder each Sunday for 2 hours. Forced myself to stare at a blank text box and put something down

Several years in, writing remains hard. It’s something that still – to this day – requires time to be set aside. I turn off the music, stop checking email, and write over a few hours to crank something out. Some parts get easier, but the core activity stays difficult. Since starting a normal job (haha) it’s gotten harder to write on Sunday evenings, since that’s when the work email starts. But a good chunk of the writing on this blog happened over Sunday evenings, a few times a month, blocked out with no distractions.

Most of my writing comes from talking/reading deciding I strongly agree or disagree. These opinions become titles. Titles become essays.

After a lively lunch/dinner discussion where a provocative opinion is blurted out – say, that cryptocurrencies are going to be widely adopted and ultimately cause a global recession – I usually write it down. If it’s fun and memorable, it’s an easy thing to write 3-4 supporting points as paragraphs, and turn into an essay later.

People are often obsessed with needing to write original ideas. Forget it. You’re a journalist with a day job in the tech industry

Thinking of yourself as a journalist that’s covering interesting ideas, trends, products, and everything that’s happening around you leads to much better/stronger content. It means you can write often and build on others’ ideas, without feeling like everything has to be completely new. Just as startup ideas are rarely new, but rather twists on older ideas, the same goes for your observations and ideas on tech.

An email subscriber is worth 100x twitter or LinkedIn followers or whatever other stuff is out there. An email = a real channel

For a professional audience, at least, email is the only KPI I care about. Nothing has more engagement. And importantly, to a previous point, it’s independent/decentralized and will clearly be around in a decade – it’s hard to say that about any of these other subscriber metrics. Given that, I focus on my blog’s UI on collecting emails – both on the homepage, at the bottom of essays, plus those annoying popups that are (unfortunately) super effective.

I started writing while working at a VC. They asked, “Why give away ideas? That’s your edge.” Ironic that VCs blog/tweet all day now ;)

It took a long time for VCs to figure out how to market themselves and their ideas :)

Publishing ideas, learnings, opinions, for years & years is a great way to give. And you’ll figure out how to capture value later

The first year of writing, I had an audience of hundreds, including friends/colleagues from Seattle, my sister, etc. It wouldn’t be until a year later that I figured out it was a helpful asset when you’re going out and trying to raise money for a startup! And years after that, to help get your company acquired. And a great launching pad for market research and side projects too!

Creating is the thing – writing is a subset
For me, writing on this blog has been a real gamechanger in terms of building relationships, a professional reputation, etc. But it’s just one potential method of creating and putting content out there. Maybe your version of this is through videos, photography, or podcasts. Or maybe you’re a developer and want to keep shipping open source projects. All of it can work. The important part is just to start giving out your knowledge and ideas – and over time, to build that into a platform for other activities.

Just get started and I doubt you’ll regret it. And to those who’ve been reading my work for the last decade, thank you! I appreciate it.

]]>How to build a billion dollar digital marketplace – examples from Uber, eBay, Craigslist, and morehttp://andrewchen.co/how-to-build-a-billion-dollar-digital-marketplace-examples-from-uber-ebay-craigslist-and-more/
Tue, 17 Oct 2017 17:00:08 +0000http://andrewchen.co/?p=4170Marketplaces are easily underestimated When marketplaces get big, they can get really big. Some of the biggest tech successes ever – eBay, Airbnb, Alibaba, Uber – are marketplaces worth tens of billions of dollars each. And yet marketplaces often start small, in niches and weird corners of the Internet. As we all know, when eBay […]

Marketplaces are easily underestimated
When marketplaces get big, they can get really big. Some of the biggest tech successes ever – eBay, Airbnb, Alibaba, Uber – are marketplaces worth tens of billions of dollars each.

And yet marketplaces often start small, in niches and weird corners of the Internet. As we all know, when eBay got started in 1995, it was focused on collectibles. The venerable venture capital firm, Bessemer Venture Partners, famously passed on an early investment:

An early investment in eBay would soon yield a 50,000% return from Series A to after the IPO, as the company started to help transact on everything from electronics, cars, homewares, and more.

Two decades after eBay was founded, a similar story unfolded itself, this time over Uber (my current employer!) and the taxi market. NYU Professor Aswath Damodaran asserted that Uber was overvalued after a 2014 investment round. Based on data points from the global taxi and car-service market, he concluded the real number should be $5.9B. Since the 2014 article, Uber has blown past his estimate by 10X, with top line revenues to support it. Not bad. The reason the estimate was so off, as investor Bill Gurley pointed out, is that Uber goes beyond taxi use cases and grows the market substantially by unlocking many new categories of transportation. Another example of going from niche into more use cases over time.

Starting small, and what to do nextIn both the eBay and Uber examples, we see that you can start with a niche – whether that’s a geography or product line – and then quickly scale into a huge network of buyers and sellers. It turns out that there are a couple key moves to make this happen, and today I’ll highlight some of the main strategies with examples across the past few decades:

Expand into new geographic markets

Add new products and price points

Decrease friction from signup to successful transaction

Grow supply + demand stickiness

Let’s dive into each one.

1. Expand into new geographic markets
Marketplaces like Uber, OpenTable, Craigslist, and others are hyperlocal in nature, and a critical mass of supply/demand must be quickly built within a constrained geography. If a customer is trying to book a restaurant in the Hayes Valley neighborhood of San Francisco, you don’t care much how many restaurants are also on the platform in Manhattan.

As you might imagine, breaking into each new local market can be incredibly painful. Marketplace companies often end up employing teams of “launchers,” a specialized ops role focused on cracking new cities.

Here’s a great Quora writeup on Uber’s Launcher team from Chris Ballard (these days, GM SoCal):

The “Launcher” role at Uber is one of the most physically, emotionally, and mentally challenging roles that an individual will come across. It is also one of the most rewarding. […]

Once in a city, the Launcher must simultaneously:

recruit, hire, and train a local team

develop partnerships and manage relationships with local hire car operators (NB: Uber does not own any vehicles. We work with existing accredited, licensed, and insured hire car owners)

create a marketing strategy to scale the client base and increase visibility

The travel is intensive. Launchers are on the road over 300 days per year. We live out of suitcases, and our most important possessions are our MacAirs and our Passports. If you tend to get homesick after a few days or don’t sleep well unless you’re in your own bed, this is definitely not the position for you.

Launching is hard work, but the good news about these hyperlocal marketplaces is that if it works in one market, then it will probably work in hundreds more. Sometimes there will be stronger cross-network growth across geographies than you initially imagine, enabled by factors like Airbnb’s global travel use case, which can supercharge your addressable market.

Furthermore, if you are a new startup, you can go after hyperlocal markets where your competitors are weak, and build a local network effect that will be hard to dislodge.

2. Add new products and price points
The next variable that marketplaces can play with is expansion of product lines and price points. Both of these directly unlock new use cases and addressable market, and there are strong examples of how this happens. Craigslist, the mother of all free marketplaces, started with events and then expanded to jobs and apartments.

In an Inc interview in 2016, Craig Newmark reminisces on the early form of Craigslist – literally just an email list – and how he intuitively added product categories over time:

Craigslist began with a single email in 1995–you simply shared interesting things going on in San Francisco. What was in that first email? The first ones had to do with two events: Joe’s Digital Diner, where people would show the use of multimedia technology. It was just emerging then. Around a dozen of us would come and have dinner–always spaghetti and meatballs–around a big table. And a party called the Anon Salon, which was very theatrical but also technology focused.

How many people did that first email go to? Ten to 12.

And then? People just kept emailing me asking for their addresses to be added to the cc list, or eventually to the listserv. As tasks started getting onerous, I would usually write some code to automate them. And I just kept listening. At first, the email was just arts and technology events. Then people asked if I could pass on a post about a job or something for sale. I could sense an apartment shortage growing, so I asked people to send apartment notices, too.

Today, Craigslist in over 57,000 cities, generating $700M in revenue per year (on job listings fees!) with just 50 employees. Amazing.

A related move is to offer new price points to the market, which can unlock new use cases and grow the addressable market as well. A good example of this is Airbnb, which provides a much wider set of offerings to guests – from super cheap to super expensive – as compared to their hotel competitors. The low-end of this enables new, higher-frequency use cases to emerge, like weekend getaways. The high-end allows for large family gatherings, like weddings or reunions, to all share a huge house together.

Pricing is a key strategic move because it’s often the main factor for customers, as seen in this Morgan Stanley survey of Airbnb customers:

And of course, we’re also seeing direct product expansion from Airbnb, via their new Experiences product that can be an upsell in addition to accommodations.

3. Decrease friction from signup to successful transactionThe dual levers of geographic and product expansion are powerful, and decreasing the friction of conducting transactions on the marketplace amplifies both. This grows the TAM in two ways: 1) First, directly growing the market because lower friction transactions mean more sales. 2) But also, more subtly, it unlocks more transactions when your marketplace can be incorporated into new use cases that require reliability and ease of use.

For example, few people use taxis to commute, because the service can be expensive/flaky, whereas many folks use Uber POOL to commute because it’s reliable and affordable. You’re bound to use OpenTable more to snag last minute reservations when restaurant inventory is up to date, making it convenient for even casual get-togethers.

There are many ways to decrease friction, but in particular we should look at this from the perspective of the customer (both buyer/seller) through their journey from signup to transaction:

Reducing friction from the transaction to receiving the product/service:

Reliability and consistency – driven by both market liquidity and UX

Determining the right price

Timing and logistics on completing the transaction

Resolving post-transaction issues

Focusing on reducing the friction on the above doesn’t just generate more revenue for the marketplace, but it’s also just a much better customer experience.

4. Grow supply + demand stickinessTransactions require strong retention of both demand and supply, and if a marketplace can improve that stickiness, more activity can be generated on the platform. In many ways, this is just a classic retention problem, except with multiple players within the ecosystem. Just as you would on a social network product, you can tackle using traditional growth methods:

Notifications: Creating a strong notifications platform to engage buyers/sellers at the right time

Use cases: Understanding use cases and how to up-sell and cross-sell the stickiest ones

Offers/promotions: Using offers and content throughout the calendar cycle to engage

However, beyond the traditional techniques, we’ve also seen a recent trends towards deeper productization of workflows for buyers and sellers within a platform. This solution, coined in recent years by James Currier and the NFX crew, is to build a “market network” that’s part SaaS tooling and part marketplace.

As a reminder, Market Networks provide useful tools to each side of the market – for instance, OpenTable’s seating system, you get stickiness purely through utility. Combine that with a marketplace, and you get even stronger effect.

Here’s a diagram illustrating the ecosystem:

And below are some examples based on AngelList and Honeybook – showing how multiple players on a market network ecosystem might interact with each other.

As one can see, sometimes these relationships between ecosystem players happen via money, and sometimes it’s through content/community. These rich interactions, facilitated by a great product UX, can retain multiple players and generate a rich stream of transactions. It’s still early years for market networks, and I’m excited to see this sector develop.

Marketplaces can start small, and end up big. Very big.
To build a billion dollar marketplace, you have to build expansion into your model from day 1.

For some, this will look like focusing on geographic growth and building your team of launchers. For others, it’ll be about adding new product lines and price points quickly, to create new use cases for your market. Or you can improve the core platform, by increasing efficiency – whether that means onboarding or the friction of each transaction. Others can double down on retention, by building utility and workflow automation, to set a foundation for more transactions.

Each of these moves can be valid, and different marketplaces will do each. Or perhaps all of them!

]]>VIDEO: Three things you need to know to raise money in Silicon Valleyhttp://andrewchen.co/video-why-non-bay-area-startups-struggle-to-find-investors-here/
Wed, 27 Sep 2017 17:06:37 +0000http://andrewchen.co/?p=4159 Raising money is hard. And it’s even harder if you’re an entrepreneur from outside the Bay Area. Entrepreneurs from outside of Silicon Valley often struggle to raise money here. There’s issues with culture and style, differences in expectations, as well as our emphasis on growth over monetization. I’m reminded of this every time I […]

Raising money is hard. And it’s even harder if you’re an entrepreneur from outside the Bay Area.

Entrepreneurs from outside of Silicon Valley often struggle to raise money here. There’s issues with culture and style, differences in expectations, as well as our emphasis on growth over monetization. I’m reminded of this every time I travel and meet startups. Earlier this year in Paris, my girlfriend Brianne (at Zendesk!) and I gave a talk that touched on many of these issues. We recorded the session and wanted to share it with you.

The video has a variety of topics, including:

How the startup ecosystems are different in SF and in Sydney (and Paris!) (2:30)

An alternative to influencer marketing, for startups (5:09)

A different way to think about your competition (7:02)

Customer service as a competitive advantage (9:25)

Why ecosystem matters, and why the Bay Area is cushier than most people think (12:50)

Why you should look for failed experiences if you’re hiring or interviewing (14:56)

Insights on Uber’s “give / get” program (18:17)

Breaking into VC as a teenager (19:02)

Advice for starting your own blog or thought platform (26:27)

Biggest fiascos working in growth and the downsides to being “too good” at acquisition (29:20)

The 4 -5 stages to building a great growth team, and what profiles to look for (33:13)

Does the rise of “growth” mean that “marketing” is dying, and should we expect to see the end of the CMO? (36:18)

Why you need “growth” when you work in a company with a million-dollar acquisition budget? (39:39)

For those who are too busy/lazy to watch the video, I want to deep dive on a particular topic: The challenges of entrepreneurs from outside the Bay Area who are pitching investors here.

1. Your company right now doesn’t matter as much as your company’s trajectory.I’m going to generalize a bit from startups I’ve met from Australia/Europe. One common anti-pattern is for startups to pitch what they have right now, to their detriment. Bay Area investors seek to understand the trajectory of a company. They want to know what it could be in the coming years, and so it’s not good when a pitch is literal and descriptive to the present state of the company. “This is exactly what I’m doing today, and these are the current numbers.” And so on. While this is concrete and feels real, it’s also not the right approach to create a strong vision and narrative that’s exciting.

If you’re a SaaS company, you don’t talk about this last month’s MRR with X% monthly growth rate. You should also talk about how this is the beginning of a platform/suite of products. And why it’s strategic, and sticky, and will be hard for companies to rip/replace in the future. If you’re a consumer startup, then it’s not about how many installs your app has today. Instead, you want to talk about the network you’re building when hundreds of millions of users are actively engaged in your product. And what this will enable you to do that’s unique in the market.

Where the startup is now is just a supporting bullet point to that story about where things are headed.

2. Investor motivations are different. Large outcomes matter more than high probability of success.The second observation is that Bay Area VCs often have different motivations than investors elsewhere. For traditional Series A venture capital firms, their biggest limitation is not high quality dealflow. There’s a ton of great startups here. Instead, it’s that a partner can only be on the boards of about ten active startups at a given time. Thus, what they care most about is maximizing those ten startups. They want to make sure that those ten are the ten biggest possible companies they could be investing in, with the best possible outcomes.

They care less about whether or not your startup is profitable because that’s sometimes irrelevant to the size of the future outcome. In fact, profitability can be interpreted as reducing the potential scale of the business when the company isn’t growing fast enough. When you can only invest in ten startups and have a billion dollar fund behind you, then it’s all about opportunity cost. I’ve heard a VC say that they’d rather inject more risk into a business to avert a small/medium size outcome ($100M) to have a smaller percentage chance they can get a multi-billion dollar outcome. This can be a disorienting point of view until you understand the economics of a large professional investment fund.

3. At the startup stage, scale and velocity matter more than depth of monetization.Finally, the third observation is also related to the emphasis on monetization from investors I’ve met in Sydney, Sweden, and France. There’s exceptions of course, but speaking in generalities, investors will naturally have a different investment strategy when they can’t assume that there’s a ton of follow-on funding behind every check. As a result, there’s a focus on getting to profitability so that the company can be self-sufficient.

This also means that there tends to be more B2B and even enterprise startups than we typically see in the US. This is because there certainly are major advantages to that model — you’re able to book revenue faster and show initial traction. But, the key problem that this approach introduces is that it limits the scale and velocity of growth because it’s just much harder to scale an enterprise business than it is to scale a consumerized SaaS or a purely consumer business.

Wrapping up
There’s a ton more content in the video, but ultimately, a lot of the differences in startup cultures for the Bay Area versus other regions comes from these varying investor and entrepreneur motivations. I’ve seen it directly from my meetings with startups from various communities.

It’s often tempting to think that there’s so much investor money here that they’re giving out checks at SFO – and as soon as you land, you’ll get funded. But it’s not quite that easy. For a new entrepreneur to come to SF and succeed, one has to often rethink the style, content, and even growth strategy of their pitch to adjust to a very different ecosystem and set of perspectives.

]]>Startups are cheaper to build, but more expensive to grow – here’s whyhttp://andrewchen.co/startups-are-cheaper-to-build-more-expensive-to-grow/
Wed, 19 Jul 2017 17:00:33 +0000http://andrewchen.co/?p=4125Startups should be getting cheaper to build. After all, the industry’s created several waves of innovation that’s supporting this across multiple layers in the stack: Open source software instead of paid developer tools AWS instead of your own datacenter Per-click ads instead of Superbowl commercials Off-the-shelf SaaS tools versus building your own App stores for efficient […]

Startups should be getting cheaper to build. After all, the industry’s created several waves of innovation that’s supporting this across multiple layers in the stack:

Open source software instead of paid developer tools

AWS instead of your own datacenter

Per-click ads instead of Superbowl commercials

Off-the-shelf SaaS tools versus building your own

App stores for efficient global distribution

Not only do a number of these trends make building new products cheap, in many cases it’s about driving the costs down to zero. If we zoom just into AWS / cloud computing, you see how a massive amount of competition is leading to significantly lower costs – even some vendors giving away their services pro bono:

As cloud providers rush to build new data centres, and battle for market share, businesses are finding that the cost of putting their computing and data storage into the online cloud is getting ever cheaper. In the past three years prices are down by around a quarter, according to Citigroup, a bank; and further significant falls look all but inevitable. Some providers, such as Microsoft, have started providing their services free to startups, in the hope of turning them into paying customers as they grow. (Economist)

However, this is opposite of what’s happening. Instead, startups are raising more capital and burning more capital to get to their Series As. It might be cheap to build the v1 of your app, but getting traction is a whole other story. Compared to a decade ago, it’s getting more expensive to get traction, while at the same time, growth is getting harder from intensive competition, consolidation, and saturation.

Why costs are risingThere are two underlying reasons for the increasing costs: Salary/comp for your team, and growth has shifted more towards paid acquisition. While the former is obvious (especially to those paying rent in San Francisco), the second is more nuanced, since it’s driven by a number of industry trends.

As we’ve said, growth is getting harder, and as a result, companies building new products are evolving their strategies away from counting on traditional channels like virality, SEO, and organic, and more towards paid acquisition to scale. Even though traction is difficult to achieve in today’s climate, venture capital is plentiful for those who hit a solid growth curve. This means that companies have an advantage when they execute well also have a natural product/channel match for paid acquisition channel. (Think high LTVs, lack of ad competition, being good at fundraising.)

What’s happening as a resultAs a result of this pivot towards paid acquisition to scale, we see four trends that go along with rising costs:

Startups are raising more money to get to traction

Companies are trying paid marketing earlier

There’s an increase in emphasis on paid referral programs rather than virality

Companies are going for deeper monetization in order to open up paid channels

Let’s look at each of these trends.

1. Startups are raising more money to get to tractionMore focus on paid acquisition means startups need to raise more money to raise money only once they can prove out their traction. We’re seeing more companies raising more money to get more traction before they raise, and when they do take the new round, it’s often to fund bigger and more expensive paid acquisition efforts.

The median seed round tripled from $272K to $750K between 2010 and 2016 according to analysis from Tom Tunguz over at Redpoint, and that growth extends to later rounds too. Companies across the board are raising bigger rounds, often from non-traditional investors, to drive growth for the next fundraise or for an exit (source: Quartz):

In the initial stages, this extra money enables buying early growth through testing and sub-scale campaigns to compliment organic growth. As a company scales, these bigger rounds buy you time and acquisition resources to build a defensible but expensive flywheel.

2. Companies are trying paid marketing earlierThe good news about more companies trying paid acquisition is that it’s easier than ever to experiment with paid marketing early. Self-serve ad systems are now the norm, which we can see from recent self-serve ad launches from newer platforms like Snap and Quora. Companies can test and master paid spend much earlier and run meaningful experiments with budget as low as $50. This allows an earlier and better understanding of unit economics and how to optimize the other steps in the funnel.

“Today, advertisers of all sizes expect platforms to offer them a number features as basic built-ins: self-serve, hyper-targeting, analytics, dynamic pricing. The way ad platforms are now structured with these features allows you to run small tests with sub-scale campaigns. It takes minimal time to make the creative, and it’s super easy to do testing for startups and new products.”

The internet advertising industry continues to grow across all channels. The number of advertisers on Facebook alone recently hit 5 million, up from 4 million just 7 months ago.

There are a couple of implications to this. First, more competition (in total spend and in number of spenders) increases the global focus on paid acquisition. As a result, everyone’s spending more.

3. More emphasis on paid referral programs rather than viralityViral channels aren’t working as well as they used to because of the natural lifecycle that affects all acquisition channels. Today, 10 years after the introduction of biggest social networks, most viral channels have peaked:

Perhaps we’ll see the return of these social channels, as messaging platforms mature, but in the meantime, many companies are utilizing referral campaigns to juice their acquisition. Paid referral programs also help build user engagement and get companies to faster network effects because on top of bringing in more users, they bring in more users who are already connected to each other.

Dropbox’s give/get disk space was one famous early example of referral, but these days, the largest companies from Uber to Airbnb all utilize referral programs.

4. Monetize more deeply to open up channelsTo support the increase in paid spend, companies need to either raise more money, or make more money. As a result, we’re seeing companies optimize for better LTVs to justify higher CAC and increased competition across the board.

Companies like Wealthfront, Breather, Credit Karma and Gusto have all hit high LTVs early in their lifecycles, and that profitability has bought them a competitive edge in acquisition as those stronger LTVs afford them higher CAC. Anecdotally, it’s been said that many Fintech companies have CACs over $1000+ to acquire a single customer.

All acquisition channels are an efficient market at some point, and this means that companies that monetize better than their competitors (either with higher LTVs or because they enjoy shorter payback periods) will be able to afford a higher CAC and subsequently out-invest those competitors. In short, better monetization is a competitive advantage for growth.

]]>This year’s top essays on growth metrics, consumer psychology, Uber, push notifs, NPS, and morehttp://andrewchen.co/top-essays-2017/
Mon, 10 Jul 2017 16:30:57 +0000http://andrewchen.co/?p=4118Readers, As you can tell, I’ve been a bit more active writing in the last few months. I wanted to do a quick roundup of my essays over the last year, in case you’ve missed any of them. I’ve published a number of guest essays and original writing on topics like growth metrics, consumer psych, the […]

Readers,
As you can tell, I’ve been a bit more active writing in the last few months. I wanted to do a quick roundup of my essays over the last year, in case you’ve missed any of them. I’ve published a number of guest essays and original writing on topics like growth metrics, consumer psych, the startup ecosystem in the Bay Area, push notifications, and much more.

For your convenience, I’ve written a couple blurbs underneath each essay so you can get a sense for each article.

Finally, I wanted to note – can you believe I’ve been writing for almost 11 years now? Who knew I’d be able to keep it up for so long?! Appreciate all the folks who’ve been with me for years. Thank you for reading!

Regards,
Andrew Chen
San Francisco, California

Original essays

10 years in the Bay Area – what I’ve learnedI’ve lived here for the last decade, and have learned a ton of about this region’s entrepreneurial drive, the unique culture, and wonderful folks. I wanted to share a couple lessons learned here.

What’s next in growth? (Presentation at Australia’s StartCon)Last year I presented this talk on how marketing has evolved over the last century, and how many of the ideas we think of as “growth” today are actually based on concepts from decades ago. I use this to talk about future platforms and where this might all go.

Uber’s virtuous cycle. Geographic density, hyperlocal marketplaces, and why drivers are keyIn my last two years at Uber, I’ve learned a ton about the flywheel that makes Uber’s core business hum and grow incredibly fast. In this essay I draw from Bill Gurley’s essays on network effects, the labor market for part-time workers (aka drivers, “the supply side”), and how surge works within the company. A lot has evolved/changed since I’ve written this, but it’s a good overview from my first year of learnings.

Guest essays

How To (Actually) Calculate CACBrian Balfour, ex-vp growth at Hubspot, talks about how to calculate cost of acquisition and all the practical difficulties involved.

]]>Growth is getting hard from intensive competition, consolidation, and saturationhttp://andrewchen.co/growth-is-getting-hard/
Mon, 26 Jun 2017 16:30:46 +0000http://andrewchen.co/?p=4098The end of the cycle One of the best essays written last year was Elad Gil’s End of Cycle? – referencing our most recent 2007-2017 run on mobile and web software, and the implications for investing, startups, and entrepreneurs. Although he doesn’t directly talk about it, the end of a tech cycle has major implications for launching […]

The end of the cycle
One of the best essays written last year was Elad Gil’s End of Cycle? – referencing our most recent 2007-2017 run on mobile and web software, and the implications for investing, startups, and entrepreneurs. Although he doesn’t directly talk about it, the end of a tech cycle has major implications for launching new products, growing existing product categories, because of a simple thing:

It gets much, much harder to grow new products or pivot existing ones into new markets

The reason for the above is that there are multiple trends – happening right now – that impede growth for new products. These trends are being driven by the biggest players – Google/Facebook, et al – but also by the significant leveling up around of practitioners in design/PM/data/growth.

We’ll look at a couple trends in this essay, including the following:

Mobile platform consolidation

Competition on paid channels

Banner blindness = shitty clickthroughs

Superior tooling

Smarter, faster competitors

Competing with boredom is easier than competing with Google/Facebook

These trends are powerful and critical to understanding why all of a sudden, entrepreneurs/investors are starting to get into many new fields (genomics, VTOL cars, cryptocurrency, autonomy, IoT, etc) in order to find new opportunities. After all, if you can’t grow in the existing markets, you very quickly need to get into new ones, as Elad describes:

One sign that technology markets often exhibit at the tail end of a cycle is a fast diversification of the types of startups getting funded. For example, following the core internet boom of the late 90s (Google, Yahoo!, eBay, PayPal), in early 2000 and 2001 there was a sudden diversification and investment into P2P and mobile (before mobile was ready) and then in 2002-2003 people started looking at CleanTech, Nanotech etc – industries that obviously all eventually failed from an entrepreneurial and investment return perspective.

Nanotech, cleantech, etc was the last cycle, and now we’re talking about the next one.

#1 Mobile platform consolidationThe new Google/Apple app duopoly is more concentrated, more closed, and far less rich (from a growth standpoint) as compared to web – which means that mobile is far more stagnant and harder to break into. App Store functionality like top ranking charts, “Essential” bundles of apps, editorialized “Featured App” sections, all help drive a winner-takes-all mobile ecosystem.

No wonder app store rankings have ossified over the years. Facebook and Google now control most of the Top 10 apps in the mobile ecosystem:

Source: Nielsen, Dec 2016

If you’re introducing a new app – whether unbundling a more complex app or launching a new startup – how do you break into this? There’s not a ton of organic opportunities. And the paid acquisition channels are getting saturated too.

#2 Competition on paid channelsPaying for acquisition is one of the key channels still available, if you can find the right untapped audience segments with high ROIs. This only works when prices aren’t bidded up and you don’t face too much competition for the same ad inventory. Unfortunately that’s not what’s happening.

For example, let’s look at some of the dynamics of Facebook increasing their revenue per DAU over the last few years:

This is driven by a number of factors, of course – relevance, targeting, ad unit engagement, etc. – but it’s also because competition is getting fiercer on Facebook ads, not less, which is evidenced by the rapid increase in the advertiser count as well as the increase in revenue per user. In 2017, Facebook counts over 5 million advertisers on its platform, up from 4 million in Q3 of last year and 2 million in 2015. During its Q1 2017 earnings call, Facebook told investors that it expected ad revenue was approaching a saturation point, despite major growth in Q1 2017 earnings as compared to 2016. It’s currently at 2 billion users, with 17% YoY user growth, and its ability to add more inventory depends increasing its user base, or increasing users’ time spent on Facebook.

#3 Banner blindness = shitty clickthroughs
Additionally, everyone’s getting smarter about growth, including consumers. Today, most invite systems no longer have the same novelty value or efficacy as they did 10 years ago (Dropbox’ give/get was novel when it launched), and consumers’ “banner blindness” extends far beyond actual display advertising to encompass referral systems and virality programs.

In Mary Meeker’s latest internet trends report, she reports that up to 1/3 of some countries are using ad blocking, and we’re quickly on our way to 600M internet MAU who can’t be reached by ads:

… and that traditional banner CTRs seem to be asymptotically approaching zero:

These trends are troubling, and mean that these channels are getting less engagement per user, and we haven’t found amazing new channels to replace them.

#4 Superior tooling – which levels the playing fieldAt the same time as advertising is getting more crowded, there’s also increasingly widespread availability and adoption of tools like Mixpanel, Leanplum, Optimizely and others that close the gap on being data-driven at companies.

Ten years ago, we used to look at total registered users. Cohort analysis was a sophisticated approach, and we also didn’t have a sense for MAU, DAU or other more granular metrics. One of the killer features of Mixpanel is that it made understanding cohort-based retention turnkey. It used to take a real investment of engineers, data scientists, and know how to be able to create simple graphs like this:

Now, it’s pretty much turnkey. You can get this chart from Mixpanel (and may others!) practically for free, as soon as you implement your analytics tracking.

In B2B, we’re seeing the same phenomenon. Outbound used to be painstaking and manual. Today, there are many sales tools that make outbound more accessible (Mixmax, Outreach, insidesales.com etc), which automates part of the process but also generates more noise and competition. Tasks that used to be more manual and higher friction are automated and easier, which leads to more people jumping in.

The result is that it makes everyone better. You and all your competitors understand your/their acquisition and retention bottlenecks. Everyone has an equal, data-driven shot at improving LTV, and as a corollary can spend more on ads.

#5 Smarter and faster competitors
It used to be that startups could count on their competitors to be big, dumb, and slow. Not anymore. We’ve all gotten smarter and faster, and that includes your competitors. It used to be that you could wait a few years before competitors would respond. Now the Facebooks, Hubspots and Salesforces of the world can and will copy you right away.

Most famously, we’ve seen Facebook fast follow Snap within their Messenger, Instagram, Whatsapp and core product:

#6 Competing with boredom is easier than competing with Facebook + GoogleWhen the App Store first launched, competition was easy: Boredom. Mobile app developers were taking time away from easy, ‘idle’ activities like waiting in line, commuting etc. But today, acquiring a new app user means stealing a user’s time from their favorite existing app.

As we’re near the end of the cycle, companies have moved from non-zero sum to a zero-sum competition.

Instead of competing with boredom, we’re now competing with Silicon Valley’s top tech companies, who already have all your users (back to number 2 above). This also applies to the consumerized workplace, where new entrants will be competing to steal users’ time from Slack, Dropbox and other favorite apps. This is much, much harder because the incumbents have pretty great products! And proven distribution models to respond if needed.

How the industry is evolving, in response
The above trends are troubling for new products, and especially for startups. All 6 of these trends are scary, and they’ve emerged because we’re at the end of a cycle. There’s a variety of natural monopolistic trends (like app stores, ad platforms, etc), where everything with related to growth and traction is getting harder.

If companies want to stay in the mobile/software product categories, they need to evolve their strategies. I’ll save a deeper discussion for a future essay, but here are some observations on what’s happening:

More money diverted to paid acquisition

Deeper monetization to open up channels – especially paid

Creation of paid referral programs to complement ad buying

Personalization features that rely on lots of data to amp up targeting

There seems to be a deepening in both monetization, differentiation, and personalization to help open up growth. This happens by solving more fundamental customer problems – especially those that help generate real $ value for people – but also helps open up paid channels, whether that’s advertising, referrals, or promos.

]]>[Hi readers, my good friend Darius Contractor (currently growth eng at Dropbox) has a brilliant new framework how user psychology has driven growth at companies like Bebo, Tickle, PhotoSugar and of course, Dropbox. Thanks to Darius and the folks at Reforge for putting this together. Hope you enjoy the writeup here! -Andrew]

Have you ever wondered why people are bouncing from your nearly-frictionless onboarding flow? Why the same change can result in a lift on one page and cause drop-off on another? Or why people who find you via search bounce away after a few moments?

Having spent years focused on building experiences that got millions of users sharing, onboarding and inviting their friends, I’ve learned 2 things:

1. Every element on the page adds or subtracts emotional energy
2. Inspiring users is as important as reducing friction

A secret of the top growth experts in tech is to think about every UX interaction as an emotional event. But far from being random or beyond our control, emotion-driven interactions can be broken down into components, optimized at each step and replicated to get better results for onboarding and conversion.

The Psych Framework

Today I’m sharing the Psych Framework I’ve used to help grow companies like Tickle, Bebo and Dropbox. It is a systematic way to detect and improve the way an experience affects user emotional energy, which we call “psych”.

Every UX interaction increases or decreases Psych, the unit of measure for motivation to complete an action.

Every element of a webpage either inspires us by giving us more units of Psych or overwhelms us by depleting our existing store of Psych.

Once you understand what elements are adding to or depleting users’ energy, you can then start to manage that energy: adding inspiration and minimizing overwhelm to help users take your core actions.

Psych Units

We measure user energy in units of “Psych”, from 0 to 100.

A user at 100 Psych is maximally committed to their current experience, does not need further motivation, and will overcome most challenges. For example, a person who needs to file their taxes tonight will do whatever it takes to download their W2 from their company’s payroll site. They’ll complete a forgotten password step, suffer through a poor interface they’ve never used before, and read through confusing numbers in order to get their taxes done in time.

A user at 0 Psych is exhausted and disinterested, to the point of abandoning their current experience. For example, a person accidentally clicking on an ad who realizes they’ve ended up on a scam site will have no motivation to continue and will bounce.

Psych Elements

Being aware of +Psych in your UI can massively drive user excitement/growth:

Tinder: “Discover new and interesting people nearby” → Yes, let’s!

Likewise, being unaware of the -Psych in your product can massively decrease success:

We call elements that inspire users and add to their emotional energy +Psych.

If a car rental site pitched “Get your car for $15/day” that might be a +Psych, inspiring users to try to get this good deal. Inversely, -Psych are items that tire or overwhelm users, such as long sign up forms, unclear UX, too much text, and unclear next actions.

Let’s test drive this concept with Match’s home page. After that, we’ll talk about what to look for in your flows and examine what Airbnb gets right in their host sign-up experience.

Example 1: Match’s homepage

How do we evaluate the Psych score of this page?

1. Determine your starting Psych

To understand how much Psych a user has when arriving to a site, consider how they got there.

For example, users who arrive on Match through a Google Search are high-intent and have intrinsic motivation since they’re explicitly searching for dating. So they’re around a 60 Psych.

By contrast, visits from banner clicks would likely be low-intent since their clickthrough came in response to an external trigger. They’re perhaps a 30 Psych.

A referral from a friend might result in a clickthrough that’s low intent but has high social validation. So, they might be at 50 Psych.

2. Follow the user’s attention from top-left to bottom-right

In left-to-right languages like English, we consume content from top-left to bottom-right. As we follow our natural path across the page, our Psych will either go up or (more likely) down as we encounter elements that excite us or elements that are obstacles.

On the Match homepage above, these are the elements we encounter from top-left to bottom-right:

Logo

Photos of singles

“#1 in dates, relationships and marriages”

Demographic form

“View Photos »” button

As you can see, right after the logo assuring us it’s a real company entity that we can trust, we see appealing photos of smiling people. Then we see the byline “#1 in dates, relationships and marriages,” which assures us that we’re going with the best site and that it’s there to help us achieve dates, relationships, or even marriage.

Next, there’s a form, which requires action that potentially depletes Psych. But we’re spurred on by the “View Photos” button — which is exactly the thing a user interested in “dates, relationships, and marriage” wants to do at this point.

3. Which elements are +Psych for you? Which are -Psych?

Let’s run through the Match homepage again and tally up Psych, element by element.

These are the + Psych elements:

“Ooohh, these people look attractive!” → +10 Psych

“They’re #1? And I can get dates/relationships/marriages?” → +3 Psych

“I like that it defaults to Woman seeking Man.” → +3 Psych

“Nice, can’t wait to View Photos” → +8 Psych

These are the – Psych elements:

“Hrm, what age am I looking for?” → -5 Psych

“Why do they need my zipcode? Argh, keyboard…” → -10 Psych

4. Sum it up!

Tally up all the Psych elements to see where users are by the time they get to your call-to-action.
Greater-than-zero Psych means the user got through the flow.

Starting from a Search: 50 Psych

+Psych: 10+3+3+8 = +24 Psych

-Psych: -5-10 = -15 Psych

Result: 59 Psych → They made it!

Next, we’ll go through some of the top +Psych and -Psych factors across common pages.

Maximizing Psych on each of your pages

1. Assess initial Psych

People come to your site with an initial quantity of Psych.

If you’re hungry at noon and haven’t eaten all day, then your Psych level for a sandwich will be very high. That will help you power through the friction of standing in line, deciding between options, and pulling out your wallet to be saved by an $8 hero.

Therefore, the first step to evaluating Psych is to look at factors determining how much Psych people have when they enter your funnel:

2. Psych on the landing page

Once a visitor hits your landing page — great! You now have multiple chances to increase their Psych to get them to continue to signup or, if you’re not careful, decrease their Psych and cause them to bounce.

3. Enter personal info

At some point, you’re going to have to ask your visitor to enter some personal information, even if that’s just their email address.

Asking for personal information usually creates a negative Psych moment, whether it’s because people are wary to share their information or because they’re simply feeling lazy and don’t want to complete an input action.

4. Interact with product

If you have a freemium or free trial model, your user will get a chance to interact with the product before it’s time to pay. This is a chance to increase Psych before the user gets to the Psych-depleting payment action.

5. Enter payment information

For most businesses, eventually it’ll be time for users to enter their payment information and complete a transaction.

This is the ultimate Psych-depleting action because of the psychological phenomenon of the pain of spending money.

While we might think that the purchase action should be Psych-increasing because of the anticipated pleasure of acquiring something we want, it actually triggers the same area of the brain as for physical pain. So, spending money = pain.

Aside from the inherent pain and negative Psych of spending, there are still things you can do to improve Psych at the payment step.

Decreasing cognitive load is more than just short signup forms

The above is a basic framework anyone can go through for figuring out the ups and downs of Psych within an onboarding flow.

But optimizing Psych isn’t just a matter of removing clicks and reducing text. In some cases, more detailed forms or copy can help by decreasing the cognitive load on making the decision — even though it’s technically more effort. For example, including more information about security and money-back guarantees can overcome trust barriers and alleviate fears for big purchases.

Now let’s look at another live example.

Example 2: Airbnb’s hosting flow

Let’s go through a more complex example — becoming a host on Airbnb.

How do we evaluate the Psych score of this page?

1. Determine your starting Psych.

To figure out the ups and downs of Psych for someone who’s thinking about hosting on Airbnb, let’s start with their mindset before they hit the landing page.

They might have heard some stories about making a lot of money on Airbnb → +20 Psych

They might have heard about it being lots of work or a negative hosting story → -10 Psych

But ultimately their positive starting Psych is greater than their doubts and they are motivated enough to check it out.

2. Follow the user’s attention from top-left to bottom-right

Airbnb offers three different ways for becoming a “host” on the platform:

Renting a house or apartment

Helping neighbors with their Airbnb listings

Leading a tour or other travel experience

To keep it simple for this post, we’ll just look at the core Airbnb “host” action — renting a house or apartment.

As you follow the user’s attention from top-left to bottom-right, it’s pretty clear that Airbnb knows what its hosting users care most about — making extra money by renting out their places.

Here are the immediate elements we encounter above the fold, from top-left to bottom-right:

Logo

“Earn money” value proposition

An interactive calculator to see how much you could earn

A “Weekly Average” box with an impressive earnings estimate and a dollar sign

From there, the page displays more content aimed at increasing Psych and reducing doubt:

Tactical instructions that demystify how Airbnb works

Reassuring details about safety and security, like their host protection insurance and their $1M guarantee for hosts

Social proof in the form of a video featuring a diverse handful of hosts talking about how income from Airbnb has helped them to stay in their homes, pay for medical bills, or fund a retirement.

Because users have to log in to continue the host flow, Airbnb’s goal on this first page is to drive up Psych high enough to carry them through the subsequent, more tedious steps in the flow — logging in or creating an account and setting up their first listing.

3. Which elements are +Psych for you? Which are -Psych?

Now let’s run through and tally up Psych, element by element.

Airbnb does a good job of loading up the page with +Psych elements because they know they’re asking a lot of the user:

“Earn money? Yes please.” → +10 Psych

“I can rent out an entire place, or a room, or just a couch? Then there probably is something for me.” → +5 Psych

Once again, you can tally up all the Psych elements to see where users are by the time they get to a call-to-action. Remember, greater-than-zero Psych means the user clicked the “Sign me up” button.

This is a simple tally of Psych on just one of the pages of the Airbnb “become a host” flow. There are obviously many more steps before a user becomes a successful host that’s contributing to the marketplace. With that in mind, you can run through the Psych Framework at each step of your onboarding or conversion flow to find opportunities to reverse -Psych and increase +Psych.

So that’s the psych framework in a nutshell. Tell me what you think in the comments and if you’d like to hear more.

]]>Startups and big cos should approach growth differently (Video)http://andrewchen.co/startups-and-big-cos-should-approach-growth-differently/
Tue, 06 Jun 2017 17:00:00 +0000http://andrewchen.co/?p=4070I recently did a video interview on the topic of how your growth strategy changes from being a small startup versus becoming a larger company. It’s hard to compete when you’re launching a new product and you have to think asymmetrically for your growth efforts to work. I walk through each stage, step by step, and talk […]

]]>I recently did a video interview on the topic of how your growth strategy changes from being a small startup versus becoming a larger company. It’s hard to compete when you’re launching a new product and you have to think asymmetrically for your growth efforts to work. I walk through each stage, step by step, and talk through some of the strategic dynamics to think about. (Thanks to the Reforge folks for setting this up!)

“Right now” is the wrong way to think about it; it’s about the trajectory

Stage 1: Map the user lifecycle:

What are all the other tools, apps, offline experiences that your users are also coming into contact with?

Find out what your product is most adjacent to

Stage 2: Sizing / understanding the trajectory of all these things that are out there (at an MAU level).

What kind of integration can you get?

Some platforms are more conducive to virality or being used as a growth channel (instagram doesn’t give you a way to link out, so it’s less good of a channel VS youtube, which does allow cross linking and linking out)

Channels have to match what people are trying to do with your product

You have to pick the right social channels for virality [11:30]

Social isn’t just digital experiences; it’s also offline experiences

So, “social channels” are any ways that your users / customers talk to each other to convey that the other person should try a product

Direct recommendation or invite: “I’ve invited you to Facebook, you should use this.”

Indirect recommendation or invite: “I’ve taken this cool Instagram photo, do you like it?”

Same applies to B2B; Dropbox is an example of indirect.

Digital is important because it’s attributable, but the broader takeaway is to create a product with a bunch of touchpoints in a user’s life; those touchpoints trigger natural recommendation or invite opportunities

]]>The Bad Product Fallacy: Don’t confuse “I don’t like it” with “That’s a bad product and it’ll fail”http://andrewchen.co/bad-product-fallacy/
Mon, 30 Jan 2017 17:30:42 +0000http://andrewchen.co/?p=3880Benedict Evans at a16z recently tweeted the following: There’s so much truth in this tweet. And it resonates so much, I think it deserves a name: The Bad Product Fallacy Your personal use cases and opinion are a shitty predictor of a product’s future success. I’ve been in the Bay Area for 10 years now, and nothing stings more than whiffing […]

There’s so much truth in this tweet. And it resonates so much, I think it deserves a name:

The Bad Product Fallacy
Your personal use cases and opinion are a shitty predictor of a product’s future success.

I’ve been in the Bay Area for 10 years now, and nothing stings more than whiffing on the prediction of whether a product will be success. Getting this wrong can hurt the ego and sometimes the checkbook too – just ask the dozens of investors who’ve passed on Facebook, Google, Uber, and so on! Personally, I missed completely on Facebook’s potential, and that’s just one of many bad predictions over the years.

The Bad Product Fallacy happens because the trajectory of a product evolves quickly – it’s just software, after all – and a simple set of features can quick grow into a rich, complex platform over time.

Let’s look at some of the comment root causes of the Bad Product Fallacy:

It all starts with a toyThe first and most well-studied root cause of the Bad Product Fallacy is from the theory of disruptive innovation. Many products can look like toys before they become successful. Just take Instagram as an example – it was just a photo filters app at the beginning, and is now one of the largest media properties in the world. Or personal computers, which was initially meant for hobbyists since they were underpowered and weren’t useful for business applications.

Disruptive technologies are dismissed as toys because when they are first launched they “undershoot” user needs. The first telephone could only carry voices a mile or two. The leading telco of the time, Western Union, passed on acquiring the phone because they didn’t see how it could possibly be useful to businesses and railroads – their primary customers.

– Chris Dixon, gp at a16z

Here’s now you know you might be falling for this trap: If you use a new product for the first time and say, “huh, is that all there is?” then you may just be whiffing. Or if you complain about a lack of features, even as the underlying technologies are being upgraded extremely rapidly.

Just wait a couple years- by then, the product will have improved so much that you’ll realize you got it all wrong.

Moore’s Law for everything
The inverse of disruptive innovation is that products can start out super premium, but then quickly fall in price to find success in a large, mainstream market. The iPhone is the classic example, but Tesla, Uber, and others are pulling this off too. Sometimes there’s a Moore’s Law kind of effect, where things are getting enormously better and cheaper over time.

Let’s look at the iPhone, the classic example. Steve Ballmer made a very bad prediction – when asked about the new device, he laughed! Not a threat! Instead, he explained why the iPhone would fail:

500 dollars? Fully subsidized? With a plan? I said that is the most expensive phone in the world. And it doesn’t appeal to business customers because it doesn’t have a keyboard. Which makes it not a very good email machine.

-Steve Ballmer, Microsoft on the iPhone

Funny, right? Hindsight is 20/20. Or speaking of phones, here’s another funny example, but about mobile phones in general:

In the early 1980s AT&T asked McKinsey to estimate how many cellular phones would be in use in the world at the turn of the century. The consultancy noted all the problems with the new devices—the handsets were absurdly heavy, the batteries kept running out, the coverage was patchy and the cost per minute was exorbitant—and concluded that the total market would be about 900,000. At the time this persuaded AT&T to pull out of the market, although it changed its mind later.

– The Economist, Oct 1999

But of course, mobile phones as a luxury was quickly fixed. By making the cost per minute cheap and fixing the other technical issues, the mobile phone has become the most ubiquitous computing device in the world.

Here’s how you know you’re about to commit this flavor of the Bad Product Fallacy: If you try a product and ask “Why would anyone pay so much for this?” then you need to think through what happens if the service/product becomes much, much cheaper. Or if it turns out that consumers don’t mind the price. Thinking through these trends can change the game.

I’ve myself missed here when looking at Uber in their early years. When Uber first came out, I thought, wow – why would anyone need an app to call a limo? This is a fancy person’s problem. But of course, if you can get the pricing down from a limo to a taxi, then cheaper to a taxi, and one day cheaper than owning a car – well that’s potentially a trillion dollar company. It turns out there’s some kind of Moore’s Law effect for the cost of transportation over time, and now I’m working there :)

S0me products start by selling stamps, coins, and comic books
Marketplaces have their own flavor of this fallacy because they often start with a vertical niche where buyers/sellers gather, and slowly need to grow to new verticals to be relevant. If these initial niches aren’t your jam, then you may miss on the marketplace’s potential, even if its on a trajectory to ultimately grow into areas that you’ll find useful too.

The classic example of this is eBay: Bessemer Ventures had the chance to invest, but at the time, the marketplace had a lot of collectibles. Here was their evaluation:

Of course, eBay went on to add many new verticals, from cars to electronics to much more, eventually returning 700X to their original investors.

The tricky thing here is that you may not want to buy products that are in the marketplace’s initial verticals, which means the product won’t serve your use cases or you won’t love it. However, if you wait a couple years, the marketplace may eventually grow into product categories that you care about.

Social networks and content platforms need density, penetration, to become useful
Finally, let’s look at social/communication/UGC networks which have their own issues. These platforms can be super tricky because similar to marketplaces, they need time to mature as the networks form.

The often cited 1/9/90 rule for digital communities fundamentally drives this dynamic:

The 1% rule states that the number of people who create content on the Internet represents approximately 1% of the people actually viewing that content. For example, for every person who posts on a forum, generally about 99 other people are viewing that forum but not posting. (Wikipedia)

This means that, similar to marketplaces, you need the right balance of content creators and consumers in every vertical of content to have a functioning network. If a social communications product like Snapchat is only useful when you have >5 friends using it, you’ll inherently misunderstand it if the core market is teens and not 40 year old venture capitalists. If you tried using the Internet back in 1990, you may have decided that it’d never work since it’s all academic researchers.

Today, you may be skeptical about VR because it’s mostly games and the apps you’d really like to use haven’t been developed yet. But just wait, it might all click once the right dynamic of content creators, consumers, developers, and other constituents are at the table.

Similar to marketplaces, social networks, communications tools, and user-generated content platforms need critical masses of both creators and consumers to make things work. Sometimes this starts with a niche – like college students or San Francisco techies. But if a product can nail an initial vertical and start hitting up other ones, it may be on its way to mainstream success. Don’t judge too early!

Avoiding the Bad Product FallacyIn the end, we all love to use our own personal judgement to quickly say yes or no to products. But the Bad Product Fallacy says our own opinions are terrible predictors of success, because tech is changing so quickly.

So instead, I leave you with a couple questions to ask when you are looking at a new product:

If it looks like a toy, what happens if it’s successful with its initial audience and then starts to add a lot more features?

If it looks like a luxury, what happens if it becomes much cheaper? Or much better, at the same price?

If it’s a marketplace that doesn’t sell anything you’d buy, what happens when it starts stocking products and services you find valauble?

If none of your friends use a social product, what happens when they win a niche and ultimately all your friends are using it too?

It’s hard to ask these questions, since they mostly imply nonlinear trajectories in product innovation. However, technology rarely progresses in a straight line – they grow exponentially, whether in utility, price/performance, or in network effect. Ask yourself the above questions to stay centered, and if you use it to find the next Uber or Facebook, give me (and Ben!) a holler :)

]]>What’s next in growth?http://andrewchen.co/whats-next-in-growth-and-marketing-for-tech/
Mon, 23 Jan 2017 18:00:22 +0000http://andrewchen.co/?p=3830[I recently gave the keynote at the largest startup conference in Australia, StartCon. Many awesome growth folks were there, including Elena Verna at SurveyMonkey, Nate Moch at Zillow, Sean Ellis at GrowthHackers, etc. My talk is below, with links to my talk, preso PDF, etc at the bottom. If you want to see all the conference talks, they’re here. 25% off code: […]

]]>[I recently gave the keynote at the largest startup conference in Australia, StartCon. Many awesome growth folks were there, including Elena Verna at SurveyMonkey, Nate Moch at Zillow, Sean Ellis at GrowthHackers, etc. My talk is below, with links to my talk, preso PDF, etc at the bottom. If you want to see all the conference talks, they’re here. 25% off code: WHATSNEXT. Thanks! -A]

In tech, we’re always thinking about the future.

This is why it’s no surprise that one of the most common questions I get is: What’s next in growth? As practitioners in growth, marketing, entrepreneurship, and tech, we’re looking for the edge that’ll give our products a chance to succeed in an extremely competitive and dynamic environment.

The answer to this isn’t simple – there isn’t an obvious closed form solution, so I won’t try to give a “tips and tricks” kind of answer. Instead, let’s talk about how to systematically answer this in a way that’ll be relevant today as well as 10 years from now.

First, we have to zoom out.

Technology, products, growth, and marketing don’t exist in a vacuum. There’ve been many products, and lots of smart folks thinking about this problem for a long time. If we look back at what’s come before us, we can try connecting the dots to see if we can spot any patterns.

The first thing we spot when we zoom out is that the pace of innovation has been speeding up:

Here’s a graph of various technologies and how fast they’ve been adopted over the last hundred years. It used to be that products like the telephone or electricity took on order of 50 years to go from 0% of the US population to 90%. In the last recent cycles, things have been going much faster – the internet, cellphones, and the computer have all hit massive penetration within just 10 years. Amazing.

This also means that strategies for growing your products are becoming even more competitive, dynamic, and tricky.

Today, we’re going to look at three common techniques for growth:

Getting customers to refer friends

Spreading viral content

Bootstrapping marketplaces

Let’s look at what these problems looked like 100+ years ago, and how we’re thinking about them now. I think we can learn a lot by connecting the dots.

We’ll start with customer referrals:

OK- classic move. How do we get customers to refer their friends? Some of the biggest and most successful products grow this way.

You might think of it conceptually like this:

From a fundamental path, it’s all about building a tree – getting one person to refer many friends, of which a small percentage will go on to refer the next generation of friends, and so on.

The idea here is that if we can make this happen in a chain, then we get a viral loop, which grows and grows awareness for your products.

No matter what kind of marketplace, the questions you have to answer – in any configuration here – are quite simple.

We need to figure out why you refer people. Is it monetary? Is it because the product gains in utility as more people join? Is it because you want to galvanize a collective response – like voting on a poll?

Who do you invite? Is a small network of close friends and family? Or is it a wide group, like a YouTube video where you want millions of views from people you may not even know?

What channel do the invites happen in? Is it real life word of mouth? Or do you ask people to import their email addressbooks? Or is it through a new platform like messaging/SMS on mobile?

And finally, is this referral process successful – exponential?

We have to answer these questions for any new referral system in a digital product, but what’s surprising is, folks had to answer this question in the past as well, for anything they want to spread between friends.

Here’s a simple example: Chain letters.

Here’s an example of one of the oldest chain letters. It promised something pretty simple – if you send this to a bunch of your friends, and include some money to the folks on the list, while simultaneously adding yourself to the beneficiaries list, then you’ll get rich.

The call to action is even super specific: Within 3 days, make 5 copies, and send to 5 of your friends. Doesn’t that remind you a little bit of Facebook’s “7 friends in 10 days” internal guidance, in fact? :)

The point here is that they had to answer all the questions. You invite people to make money. The channel is email. You invite friends you want to be prosperous.

Ultimately, how different is this kind of call to action to the referral programs we see in tech products?

For Airbnb, you invite your friends so that both of you can get $35 in travel credit.

Sure, there’s major advancements. First, there’s an awesome product behind this loop, not just an unsustainable chain letter :)

Also, there’s Messenger and Facebook integration. You can invite your Gmail, Yahoo, and Outlook contacts so they tap into a massive social graph via the various platforms. Airbnb also uses a personalized link so that they can track attribution and personalize the landing pages and flows for the invitees.

Much more sophisticated in some ways, but the basics are similar to what existed 100 years ago.

Same with Dropbox, where you can give and get space. Same with many other referral programs.

The behaviors that cause people to do this are the same as what existed in the past – there’s a personal incentive for the sender, but also an incentive for the recipient. There’s a clear call to action, and a channel these messages travel upon. We can do so much more these days by integrating into platforms, and by tracking, and our sophistication in metrics like viral factor and cohort analysis, but the same general trust is there.

Next, let’s talk about spreading viral content:

Imagine this: The world gets a disruptive new technology, democratizing publishing. All of a sudden, it’s much easier for people to publish whatever content they want. The cost to publish media goes way down. A big boom proliferates, with many new kinds of media being created. Some of it is fancy, some of it is drivel. This drives societal change across many dimensions.

Is this the social media revolution in tech from the last 10 years?

No, this is the penny press revolution from 150 years ago.

Turns out, 150 years ago, we dealt with many of the same forces that affect us today in social media.

The newspaper industry went from hand-crafted to steam-powered printing. The daily press became accessible to everyone, as you could buy papers for 1 cent rather than 6 cents, spawning a brand new industry including papers like The New York Daily Times, which eventually became The New York Times.

But we’re not going to talk about the NYT, we’re going to talk about one of their cross-town rivals, The Sun of New York.

Let’s give a flavor of how they were defining news at the time:

This is great, right? News for everyone. Much cheaper. Spread all that information – it wants to be free!

Sounds amazing in theory, but we also quickly faced a problem: Fake news.

In 1895, a 6-part essay series was published in The Sun, talking about how astronomers had discovered life on the Moon. It includes vivid descriptions of an entire civilization – with buildings, amazing animals, and winged humans living in sophisticated cities.

The Sun claimed that these stories were so compelling it dramatically increased their circulation.

They didn’t retract the story for weeks!

We may laugh at this – but then surely we must also laugh at ourselves.

After all, we’ve created the next next level printing press: The Internet. Combined with social media and blogging platforms like WordPress, we’re suddenly in an environment where we went from 6 cents to publish a paper to 1 cent and now down to 0.0001 cents.

And with that, we’ve created fake news:
The Great Moon Hoax of 1835 isn’t much different than the various hoaxes and fake news of 2016. Not great.

This is an example of how technology has enabled successive generations of viral media content that’s of questionable truthiness. And even as we ponder what we’ve created recently, we have to start thinking about what technologies like VR might ultimately let us create. And how far photo and video manipulation will go, given the continued democratization of those technologies.

OK, the last growth topic we’re going to talk about is bootstrapping marketplaces:

This is an important and very old topic because humans have been trading since time immortal.

In fact, there’s evidence from prehistoric periods that there’s been long distance trade for over 150,000 years. Amazing!

So let’s dig into marketplaces:

This is a diagram is showing a two-sided marketplace, where you have buyers and sellers meeting together to exchange goods.

No matter what the marketplace looks like, you have to answer a couple simple questions:

One side will always be constrained. Usually, it’s the supply side that’s hard to get, and as long as you have folks with goods/services, you can find buyers. After you understand that dynamic, you also have to figure out how to grow buyers and how to grow sellers. Both sides of the market are typically pretty hard.

Then there’s the middle piece, which is to help both sides find, price, and transact. If you just help do one step in the process but not the whole thing, this causes problems since the experience will be disjointed. That’s why it was natural for eBay to buy Paypal.

The central growth problem with marketplaces is, how do you get them spun up? They are wonderful businesses once the marketplace network effect is going. There’s strategies to solve that now, but as you might have guessed, we had pretty sophisticated tools to solve this back in the day.

Let’s start this story with grocery stores:

Back in the day, local grocers were one major side of the marketplace that needed to be bootstrapped. If they didn’t carry your goods, you couldn’t get them in front of your customers. So how do you solve this? One of my favorite books is called My Life in Advertising by Claude Hopkins, written 100 years ago, talks about how they tackled this problem in a very clever way.

The first move was to invent the coupon:

Now, the coupon creates many important incentives. Obviously, it creates demand because then customers want to buy a product and try it out. The more nuanced effect is that it also stimulates the middlemen, the grocery stores, to carry the goods. The reason is that before you run a huge coupon marketing campaign, you can go to all the grocers and telegraph what’s going to happen

Here’s what to do: Just say, “a bunch of customers are coming to your stores for this new product, and if they don’t find it, they’re going to go to your competitors to find it instead.” Voila! By using money to generate some short-term momentum, it creates a Prisoner’s Dilemma for grocers to carry your goods. Then if your product is good, and customers keep coming back, then grocers will want to keep stocking, and your bootstrap problem is solved.

Now this is clever, but how clever is Kickstarter?

Isn’t Kickstarter and the various crowdfunding platforms really doing the same thing?

They help creators publish their products, drumming up demand, and with all the pre-orders, they’re able to convince a whole slew of ecosystem partners to help them: investors, manufacturers, retail partners, etc. The analogy is even more spot-on when you consider that they often give discounts to early backers of every product. In a way, this is just a coupon on something that doesn’t exist yet, to help bootstrap a market that would otherwise exist.

OK, so I hope you are enjoying all of these stories.

Truthfully, there are a ton of examples.

We can go on and on with examples like this. I also have some great notes on content marketing from 100 years ago – what else is the Michellin Guide for? And of press stunts. And may other examples.

After all, we’ve been at this game for a while.

The reason is that we’ve been convincing folks to buy stuff for a long, long time. Remember, humans have been trading with each other for 150,000+ years! Pretty sure that the first prehistoric cave-dwelling ancestor that could advertise their wares to their nearby communities got a major edge. And likely was the first to invent word-of-mouth marketing alongside fire!

But I want to make a broader point here:

Technology changes, but people stay the same. Human beings and our brains have been unchanged for a long time, which is why behavioral economics is so interesting – we’re susceptible to the same techniques whether it was delivered to our caveman brains or our modern brains.

And by the way, there’s a lot of techniques:

There’s so many marketing techniques that have been invented over time, and why they worked back in the day, work today, and will always work. While the platforms may have been different, many of these ideas were invented over 100 years ago. Even more, it’s obvious that these techniques will be relevant even 100 years from now! Or even 1000 years from now! Until we upload our brains to the cloud, we’ll still fundamentally refer friends for the same reasons, and find the same salacious articles compelling. Fake news will always work. :(

So when people ask “What’s next in growth?” they are often expecting an answer about technology when we should really be talking about people.

I can say with full certainty that growth opportunities will come from taking classic strategies – the stuff that’s been around for 100 years – that are fundamentally anchored on human behavior, and anchoring them on new platforms while executing well.

When it comes to new technologies, we’re talking about IoT. Wearables. Video. VR/AR. Smart TV. Autonomy. And much more…

And what a time to work on this problem. After all, technology is increasing faster and faster!

The rapid pace of technology adoption means that more and more platforms will be coming our way. And with each new platform, new opportunities will arise if we apply classic strategies and execute well.

So hats off to everyone betting their careers on VR/AR, drones, and all the new platforms coming out! It’ll take times, but there will be winners there.

In the end, if you find yourself still asking about what’s next, here’s some closing thoughts.

My challenge to everyone in the industry is simple. First, explore what’s come before us. Study the classics.

Ignore all the random noise out there in the world – all the tips and tricks that seem fun, but are actually the potato chips for our brains and careers. They taste good, can fill us up, but make us feel gross and aren’t nutritious.

Instead my guidance is simple:

If you think about new platforms, where they are in their maturity cycle, and are early when it counts, that’s great.

Much of the success of social products are due to them being first to email virality. And many of the winners within mobile were early to the smartphone platforms, which have now started to ossify.

Once you figure out the platforms, here’s where tactics can count. Execute thoughtfully and iteratively, so that you are learning about your product and platform. If you are prepared, and have mastered the tactics of the trade, then this is when you can shine.

This is the realm of A/B testing, funnel optimization, viral loop construction, building viral content, and creating sticky products. When you combine this with a new platform that’s all fresh powder, the results can be explosive.

And I want to also give a warning about growth hacks:

Nothing in this industry is ever easy. Tips and tricks aren’t enough. We have to think strategically and execute very well, over years and years to be successful.

What’s next in growth? It’s what’s come before, but combined with a dash of new tech :)

So again, the future of growth will combine a few factors:

Classic strategies that are all about people

New platforms that present big new opportunities

Combined with iterative, thoughtful execution

We can learn from the past, because the things that worked 100 years ago, or even 1000 years ago, still work today.

Here’s another quick example:

After all, technology changes, but people stay the same.

Thank you! :)

Finally, as promised, here’s a video of this talk and here’s a PDF to download. The video is just under 30 minutes, so it’s a quick watch. If you want to learn more about the conference go here: Startcon. Thanks to Cheryl and Matt for having me there!

]]>10 years in the Bay Area – what I’ve learnedhttp://andrewchen.co/10-years/
Tue, 03 Jan 2017 18:00:51 +0000http://andrewchen.co/?p=3825January 2007 Ten years ago this week, I took a long, cloudy drive from Seattle to Silicon Valley on Highway 1 to start a new job and new life. I was barely 24 years old, in a hurry to change the world, and eager to begin my first day at MDV, a Silicon Valley venture firm, as […]

January 2007
Ten years ago this week, I took a long, cloudy drive from Seattle to Silicon Valley on Highway 1 to start a new job and new life. I was barely 24 years old, in a hurry to change the world, and eager to begin my first day at MDV, a Silicon Valley venture firm, as their new Entrepreneur-in-Residence. It was 2007, and the iPhone hadn’t been released yet, YCombinator was just getting started, and MySpace was still bigger than Facebook. And who’s this Obama guy that folks are talking about?

That was a long time ago :)

A decade later, the world is incredibly different. And I’m different too, because the Bay Area has profoundly and fundamentally changed me. Along the way, there’s been good decisions and plenty of bad. I want to share some high-level observations/thoughts, focused on mostly career/professional stuff but a little bit of personal too.

Let’s dedicate this essay to all the new folks starting out in the Bay Area. Welcome!

People are the secret sauce
First, what makes the Bay Area special for tech is the people. I barely knew anyone when I first arrived here, so I had a simple goal in 2007:

Meet 5 new people per day, every day.

It helped that working at a venture firm is all about networking, so I picked aggressive goal! I started by emailing my tech friends to intro me to smart people working on cool products. Upon grabbing coffee with them, I followed up to ask for more intros, and more. I kept this insane pace for 6 months, which created an incredible introduction to the SF tech community.

Years later, while I’m nowhere near this volume anymore, I’m still going! This is one of the most fantastic ways to learn. Most importantly, while this started out as a work thing, many of the folks I met in 2007 are now close friends.

Think long-termEveryone you meet here will likely still be here in 10 years. This changes the professional dynamic so that we can all help each other, build relationships, and give real time/effort, without feeling like things have to be transactional. It starts to make sense to invest in activities that pay off in years or decades, not months.

My writing has also been a microcosm of this, where in the first few months, there was a grand total of maybe a few dozen readers – mostly friends and family, forcibly subscribed! It’s been a slow/steady ramp that’s taken thousands of hours of effort and many years to grow into a real following. So for the folks who are struggling to build audiences for your newsletters or blogs, keep going! It’s worth it.

Vuja DeThe more years of experience you accumulate in tech, the easier it gets to become negative and closed off to new ideas. It’s easy to say “No, that’s never going to work” because experience usually generalizes towards everything failing!

And yet every couple years, there’s a new cycle – social, smartphones, ridesharing – that’s counterintuitive and huge, and blows away prior assumptions. I’ve written about why I doubted Facebook could be a billion dollar business, and why I was wrong. In my years in the Bay Area, that’s one of that’s just one out of many wrong calls :)

It takes real effort to stay open-minded, even as you learn more and get comfortable in your own expertise. The IDEO folks sometimes talk of “vuja de,” a twist on the familiar term:

Deja vu is when you see something new, but feel like you’ve already seen it before.

Vuja de is when you’ve seen something a million times, but see it like it’s the first time.

It takes a lot of openness and humility to try and understand weird new companies/categories, especially when there’s bad historical datapoints. Like how search engines were a terrible business until Google. Same with social networks. Or how mobile was always the next new thing, but actually perpetual vaporware, until the iPhone.

Missed chances
The longer you live in the Bay Area, the more missed chances you’ll have. I met the Facebook founding team when they were 11 people, and thought for a split second that I should try to get a job there, before deciding it could never be big. Hilariously wrong. I have friends who could’ve invested in Uber’s seed round back when it was valued at $4M, but passed because it was “just a taxi app” – oops. An early Googler told me about a guy who joined as one of the first ten employees, but quit on his first day, forgoing $1B of stock, because the founders’ mannerisms annoyed him.

These missed chances will weirdly haunt you, even when you know better.

Startup romanticism
From the outside looking in, I thought that doing a startup was a magical, rare experience that you only got a few shots at in your life. Kind of a romantic notion that I held on to for many years. But once you’re in the Bay Area for a few years, what you quickly realize is that starting a company and getting investors funding you, actually isn’t rare at all. It’s commonplace, because actually mediocre startups and tech companies are plentiful! And it’s unfortunately very easy to start a mediocre startup of your own.

Bill Gossman, a long-time mentor who’s lived in both SF and Seattle, gave me some advice early on:

Don’t think that Silicon Valley has better entrepreneurs. They don’t. But they have more people trying. They have more crappy companies and mediocre entrepreneurs, but also they have more great companies and people too.

For me, this meant my first years in the Bay Area were spent on trying to get the “rare” chance of building a startup. Over time, I came to believe that the rare thing is actually building the Amazon, Google, Facebook, Uber-type companies that come around only every 5-10 years.

Last year, I decided to jump onto the rocketship of a great company rather than continuing with the mediocre. This is a core reason I’m at Uber these days – to have a special experience that I’ll remember, years from now.

To another ten years!
Finally, I want to thank everyone who’s been reading for the past few years. As I mention above, writing has been an enormously fulfilling thing. I’m hugely appreciative for you to have come on the journey – thank you for reading and for your comments/feedback over the years.

Here’s to a happy new year and a few more decades in the Bay Area for me :)

]]>How To (Actually) Calculate CAChttp://andrewchen.co/how-to-actually-calculate-cac/
Tue, 20 Dec 2016 18:00:44 +0000http://andrewchen.co/?p=3804[Andrew: Paid marketing remains an integral part of many products’ acquisition channels, and one of the key metrics is Cost of Customer Acquisition, which is a nuanced calculation with lots of gotchas. My good friend Brian Balfour (ex-vp growth at Hubspot) put together this incredible essays with details on how to think about it.] Brian Balfour […]

]]>[Andrew: Paid marketing remains an integral part of many products’ acquisition channels, and one of the key metrics is Cost of Customer Acquisition, which is a nuanced calculation with lots of gotchas. My good friend Brian Balfour (ex-vp growth at Hubspot) put together this incredible essays with details on how to think about it.]

Brian Balfour (ex-VP Growth at Hubspot):

In everything from growth projections to company valuations, it’s common to use CAC and CPA interchangeably — but it’s wrong, and it can cost you. In this post, I break down growth’s most important jargon to demystify the true cost of acquisition, and dig into the most common mistakes leading growth teams off track.

Note: This is a big topic that’s best addressed with live examples and interactive frameworks. To that end, I’ve included a number of examples of real companies, plus interactive spreadsheets that you can access throughout the guide. To adapt any spreadsheet for your own calculations, click here, then go to File > Make a copy to create your own version.

Customer acquisition is not CPA – Three examples

To start off, let’s address a common myth. Customer acquisition cost (CAC) and cost per acquisition (CPA) are commonly conflated, and yet in reality they’re completely different metrics. Understanding the difference is the start to understanding CAC in depth.

CAC specifically measures the cost to acquire a customer. Conversely, CPA (Cost Per Acquisition) measures the cost to acquire something that is not a customer — for example, a registration, activated user, trial, or a lead. The two are related because CPA is usually used to measure the cost of things that are leading indicators to CAC.

Four examples of how CAC and CPA are different but related:

1. Dropbox

Since Dropbox is a freemium product, CAC would be the cost to acquire a paying user on either their pro or their team plan. CPA would be used for things such as the Cost Per Registration (of a free user), Cost Per Activated (free) User, and other important, but still non-paying, actions that signal that someone has moved from being a visitor to a user of the product.

2. HubSpot

Since HubSpot is a B2B SaaS product, CAC would equal the cost to acquire a new customer on one of their Basic, Pro, or Enterprise plans. CPA would be used for leading indicators to CAC, such as Cost Per Lead, Cost Per Sales Qualified Lead, Cost Per Trial or other points in the marketing and sales funnel.

3. Facebook

B2C companies supported by ad models are a little different. In Facebook’s case the paying customer are advertisers so CAC is the cost to acquire a new advertiser. However if you just look at users, users/customers are the same. CPA is most likely used for things like Cost Per Registration, Cost Per Activated User, etc.

The key point is the first thing you need to do to understand CAC is very simple:

Define who/what a customer is in your model.

Make that definition clear and simple and get the language between CAC and CPA consistent otherwise communication will be very confusing.

The basic calculation of CAC and why it’s wrong

If you google ‘how to calculate cost of customer acquisition” you will get the basic formula below:

CAC = Total Marketing + Sales Expenses / # of New Customers Acquired

On the surface this is correct, but it is missing a lot of details and definitions around each variable in the equation to get it right. Even the best basic calculation can be very misleading. For example, using this formula you might look at the below spreadsheet and assume the following:

To adapt this spreadsheet for your own calculations, click here, then go to File > Make a copy to create your own version.

But what if I told you the following things:

It takes on average for most customers 60 days from lead to become a customer.

Not all customers are new customers, but some of them are returning.

This is a freemium product and there are costs to supporting users while they are free before they become a paying user (customer).

These three tidbits of additional information should change how we look at the basic formula above. Instead of taking the equation at face value, we need to evaluate a few questions first.

How to really calculate CAC

There are three key questions we need to ask to define a more accurate calculation of CAC for a business. All of them dig into a level deeper around the variables in the equation.

Key Question #1: How long between your marketing/sales touch points and when someone becomes a customer?

The first issue with the basic calculation is that it doesn’t take into account the time period between when you spend the marketing/sales money and when you actually acquire a customer. Here are two examples:

Example 1: Freemium Product

Let’s look at Dropbox as an example. When you sign up for Dropbox you start using their free tier. You use Dropbox free for some time period until you hit your storage space limit, which you then might upgrade. For a lot of users that time period is months (and in some cases over a year). The story is the same with other freemium products such as Evernote, Buffer, etc.

Example 2: SaaS Company w/ Inside Sales

Most SaaS companies with inside sales models someone might become a lead this month (due to our marketing efforts this month) but will take 60+ days before they become an actual customer because they need to go through the sales process.

If you don’t take these time periods into account, you could be overestimating or underestimating CAC and as a result making some terrible operating decisions.

Here is an example of how you could overestimate.In the below example, CAC is being calculated by taking the month’s marketing costs and dividing it by new customers in the same month.

To adapt this spreadsheet for your own calculations, click here, then go to File > Make a copy to create your own version.

In March we try some new channels which causes a large increase in marketing costs. Under the simple calculation our CAC is $148. If our target CAC is $125, we would likely make the decision that March was unsuccessful and we would turn off those new channels.

But, let’s say it actually takes 2 months for someone to become a customer. Below is the same data but changing the calculation to account for this 2 month period.

To adapt this spreadsheet for your own calculations, click here, then go to File > Make a copy to create your own version.

This change tells a completely different story. In March we have a CAC of $84, and in April a CAC of $111. Instead of turning off the new channels we tried in March, we would probably make the decision to scale them.

The key question about time between marketing/sales expenses and acquiring a customer does not matter if you fall in one of two scenarios:

1. The time between marketing touch point and someone becoming a customer is very short. This is true for a lot of B2C companies that have very short decision funnels for users: Snapchat, Instagram, and others.

2. Your marketing/sales expenses are so consistent that it normalizes itself out over time. But even in this case it is best to be more accurate.

You need to figure out how the timing of the expenses correlate with the timing someone actually becomes a customer. Marketing expenses could correlate differently than sales expenses.

The simplest way to account for this is figure out your average marketing/sales cycle. In other words what is the average amount of time from first marketing touch point, to acquiring the customer?

Here’s an example. Let’s say we are a SaaS company where the average time is 60 days from lead to customer and we believe the sales expenses are spread evenly over that two month time period.

To adapt this spreadsheet for your own calculations, click here, then go to File > Make a copy to create your own version.

Key Question #2: What expenses do you include in the Marketing + Sales?

The second question you need to answer to get an accurate CAC calculation is what expenses do you include in the numerator (marketing/sales)? Before we look at some examples of the answer to this question differs, here are the three most common mistakes I see:

Mistake #1: Not Including Salaries

You need to include the salaries of all people working on marketing and sales. We see CAC numbers a lot where they aren’t included. This includes not just the individual contributors who are 100% dedicated to marketing/sales, but also those (often times managers) who spend part of their time on marketing/sales. A CAC number with salaries included is often referred to as “Fully Loaded CAC.” There are some scenarios where it is useful to separate Fully Loaded from Non-Loaded CAC which we’ll explain later.

Mistake #2: Not Including Overhead

Similar to the mistake of not including salaries, you need to include the overhead (rent, equipment, etc) allocated to those employees working on marketing sales.

Mistake #3: Not Including Money Spent On Tools

The marketing and sales tool space has exploded. Most teams are using 10+ tools to operate their marketing and sales machine. These tools can add up in cost and need to be included in the expenses of your CAC calculation.

If you include those main things, the answer to this question starts to get a little more complicated and range from company to company. A couple of examples:

Spotify and the Case of Freemium – Does that Include Product/Engineering/Support?

Spotify is a freemium business. They have millions of users using the free version of their product which helps them acquire new users through sharing music and other viral channels.

In most companies, product, engineering, and support are not included in CAC (typically part of R&D). But if the free product is your primary method of customer acquisition, shouldn’t the expenses that support that free product be included in the expenses portion of your CAC calculation? There are different opinions to this question, but we fall on the side of yes.

If you had engineers, PMs, and other roles on the marketing or sales team for marketing/ops you would include those salaries and expenses in the CAC calculation. The engineers, PMs, or other roles might not technically be on the “marketing” or “sales” teams, but they are still expenses that are required to support new customer acquisition.

HubSpot and the Case of SaaS – Include Customer Success Costs?

Most SaaS companies like HubSpot have sizable Customer Success teams. The definition and roles of these teams can vary widely. Some Customer Success teams are purely devoted to churn prevention. Some are devoted to helping onboard a new customer. Some are devoted to winning previous lost customers back.

All this begs the question, should customer success costs be included in CAC? Some of these responsibilities touch acquiring new customers and therefore make the case that they should be allocated to CAC.

Dollar Shave Club and the Case of Subscription Ecommerce – Support, Shipping for Free Trial?

Dollar Shave Club is a subscription ecommerce business. They famously have a one month trial for $1. That one month trial has a number of expenses outside of marketing, including shipment costs for the initial package, support during the trial, and other costs. Should those costs be included in CAC? The answer to that depends how you define a new customer.

In Dollar Shave Club’s case, we would make an argument that someone on a $1 trial is not a customer yet. A new customer is someone that extends beyond the trial. Therefore all of those costs associated with supporting the free trial should be included in CAC. Those costs are partially offset by the $1 trial payment, but not fully offset.

A customer is a customer, right? Not necessarily. When it comes to calculating CAC, we need to distinguish between new and returning customers. In most organizations there are marketing and sales efforts focused on new customers, and there are marketing and sales efforts focused on retaining or getting customers back.

The mistake is only including marketing and sales expenses in the numerator for new customers, but including all customers (including returning customers) in the denominator. This will make your CAC look artificially low. You can solve this in one of two ways:

1. Include all marketing/sales expenses (including those focused on retention) and all customers.

2. Separate expenses for new customers from reactivating old customers and separate out new from reactivated customers in the denominator.

Recap

From the examples we’ve covered today, I hope it’s more clear that calculating true CAC involves a lot more than a simple, one-size-fits-all equation.

Instead, an honest assessment of customer acquisition cost looks at the length of your sales cycle, how many customers are truly new customers (as opposed to returning customers), and the total costs and resources required to support marketing efforts that lead to new customer acquisition.

]]>Growth Interview Questions from Atlassian, SurveyMonkey, Gusto and Hubspot (Guest Post)http://andrewchen.co/growth-interview-questions-atlassian-surveymonkey-gusto-hubspot/
Mon, 31 Oct 2016 16:30:38 +0000http://andrewchen.co/?p=3794[Andrew: Excited about today’s guest post! I was recently interviewed by the folks at Reforge, a new company started by my friends Brian Balfour and Susan Su focused on advanced professional education. They asked a great question – how do you interview for growth folks? I gave some my 2 cents based on my experience helping […]

]]>[Andrew: Excited about today’s guest post! I was recently interviewed by the folks at Reforge, a new company started by my friends Brian Balfour and Susan Su focused on advanced professional education. They asked a great question – how do you interview for growth folks? I gave some my 2 cents based on my experience helping startups and growth folks. They pulled together a great essay below!]

Growth is an emerging field, and there’s hardly a playbook on how to ace your growth interview (whichever side of the table you’re on), and yet hiring and team could be the most important “growth hack” of all. I recently asked a handful of folks from the Reforge Collective about the questions they ask when interviewing candidates for competitive positions in growth.

Here are some of the questions we’ll cover:

1. The Golden Gate Bridge
2. Growth Hacking a City
3. Are you an early adopter?
4. Live brainstorm an experiment backlog
5. What Are Your Setbacks?
6. Look for opportunity, not just risk
7. But… why?
8. The Bullshit Test
9. The Trajectory of Growth
10. Probe on Metrics
11. And on Culture
12. 6-Month Roadmap
13. Growth Resources
14. Low Hanging Fruit

If you’re looking for your next job in growth, or you’re trying to fill one at your company, consider this a peek into how a few other growth marketing experts are structuring their growth interviews.

This 1 Weird Interview QuestionGrowth is as much about showing creative problem solving as much as quick metrics-based iteration. If a candidate is out there googling answers to “trick” interview questions, then they’re missing out on an opportunity to showcase their own unique way of combining creativity with numbers.

“Weird” interview questions let you out to roam beyond the constraints of the role in front of you. The best weird questions are designed to highlight original problem-solving, and if that doesn’t excite you, then a position in growth probably won’t be fun or fruitful.

1. The Golden Gate Bridge

When she was still a candidate interviewing at SurveyMonkey, Elena Verna fielded an unusual interview question that she continues to use in her own growth interviews to this day:

Let’s say you were to come in tomorrow, and you got a new project to work on the Golden Gate Bridge and its toll collecting. But, you’re told that they’ve recently lost all of the tracking of both traffic flow and revenue collection, and your boss has just told you that you need to come up with a revenue estimate in the next 15 minutes. You don’t know anything about how much has been collected historically. All you have is a blueprint of the bridge.

How would you estimate how much revenue or the bridge generates on a weekly basis?

Elena explains that the question is meant to demonstrate your problem solving skills (not to get to the “right” answer necessarily).

For me it’s a sign that you’re willing to tackle an open-ended question in a creative way — without all of the data and answers. How am I going to approximate with only broad strokes of knowledge? What are the key variables (Bridge length? Car length? Car weight? Traffic volume?), and how far can I go in 15 minutes?

Elena insists there’s no right answer. Instead, it’s a window into your process of thinking with uncertain variables — and also how excited you get when you’re tasked with reasoning through an unsolved problem.

2. Growth Hacking a City

Ultimately, hiring for your growth role is both high risk and high opportunity. The teams with the most at stake (and offering the best opportunities) will need to explore every last corner of a person’s thinking and style, and that sometimes means taking a lateral approach.

Nick Soman poses an unusual question designed to get at the way candidates think about growth beyond the templates and playbooks that circulate in the growth community:

How would you growth hack a city?

It’s not an immediately technical or product-based experience, and yet it’s an interesting question that might actually become more and more relevant. How would you attract residents to it? How would you attract the other people and elements that that ecosystem requires? What mechanisms would you employ to grow your city? It’s very revealing to see how people approach growth when they have no templates, when they start from zero.”

3. Are you an early adopter?

Have you ever thought about your own relationship with Snapchat? Have you broken down your own psychology of engagement with Facebook? How about for lesser-known, non-consumer products that are in your life?

We are what we eat, and the products and apps we consume (and how we interact with them) can say a lot about who and how we are when it comes to creating and growing our own products and apps.

Shaun Clowes wants to know what you’re using at work:

If you just got a new computer at work, what apps would you immediately set up?

I’m looking for their take on a piece of software that they care about, something that gets them excited, and then how they explain it to me.

What are the most recent apps you been playing with on your phone?

That gives me insight into how in touch you are with the industry, how much you’re seeking out things that are different or somewhat common, and whether you’re an early adopter of things.

4. Live brainstorm an experiment backlog

It’s the default to come prepared to a growth interview. You’ve looked at their core growth loops, you’ve analyzed their funnels, and you have an (externally informed) idea of where the business is going. But what if you were put on the spot to dig even deeper into how the business can grow?

Nick Soman wants to see candidates live-brainstorm an experiment backlog:

How many ideas can you come up with in 3 minutes? Maybe it’s a handful, let’s say 5. Then, I really want to push for a 6th or a 7th.

I want to see the candidate beyond their comfort zone and extend beyond their pre-planned ideas and analysis, especially in real-time. I resist the urge to ask follow-up questions — even when I’m really curious — because I want to see you go for breadth, and then I want you to be able to follow that up with an objective assessment of those ideas.

5. What Are Your Setbacks?

If none of your experiments are failures, then you’re probably not testing the right things. Running growth means swimming in setbacks — and it helps if you’ve had some life experience with that.

Andrew Chen says the level of your setbacks say more about you than their specific details:

One of the questions that I like a lot that doesn’t have to do with growth but tells you a lot about a person is to ask about someone’s biggest setback, either personally or professionally. You can get a sense of if that’s a real setback and how they reacted to it.

For example, someone who’s very junior is going to come up with a small setback. They’re going to say, ‘Oh well at work I did a project and it sucked.’ That’s very different than something like, ‘I was at a company and I convinced the board to do something and it was a long decision and the company failed. And everyone got fired.’ Or, ‘I moved from country A to country B, left my family and friends and started over again.’

Understanding setbacks helps you understand what a person’s priorities are, and how much resilience they have to bounce back.

What Most Growth Interviews Are Missing

6. Look for opportunity, not just risk

A lot of people try to understand a candidate’s weaknesses, but Elena Verna wants to know your superpower. Early to mid-stage growth is as much about doubling down on unique advantages as it is about fixing leaks (ie, identifying and addressing weaknesses). Later, the truly stand-out orgs are the ones defined by their unfair advantages, particularly in growth and product.

Building a growth team is a microcosm of the trajectory you want to see that team take, according to Elena:

Very few growth managers will look at an opportunity in a person and say, “Ok, these are your strengths and I’m actually going to tailor a roll around you to make sure that I’m playing to your strengths.

It’s good to know what people aren’t good at — where they’ll be a liability. But I want to dig into to what they’re excellent at as well. That’s what you really need to focus on, and to make sure that that strength aligns with the position at hand or that it’s possible to mold the position around it.

Too often, we identify a problem or a hole in the business and start looking for the person that will fit it. The person you find could be effective very early on, but evaluating too tightly against specific role can be very short-sighted. Yes, they might be able to sort out that immediate issue for you but in the same stroke you may end up hiring the wrong person long term.

The real opportunity is finding the person who will be happy (and make your business happy) as the definition of growth itself expands, and the immediate problem becomes obsolete. Where do you want them to be in a year? Look for the opportunities, not just the “urgent” holes.”

7. But… why?

Most of us aren’t professional interviewers. We know our area, or we know growth marketing as a broader domain, and we stick to what we know. But, in building a growth team, you’re called to ask people about things that may not be your cup of tea.

As a result, many of us don’t dig into the details of a candidate’s experience, which is a bad idea for both the hiring organization and the candidate — the former misses out on opportunity and risk assessment (is this person a good fit?), and the latter may not get to tell their punchline.

Shaun Clowes asks a deeper layer of question where most interviews have called it a day.

Most interviewers will ask you a question about how in the past have you done X thing. You give them a surface-level answer like ‘We did Y and then achieved Z.’

A few ways to drill in more deeply would be to follow up with questions like:

When you say “we,” how much was you and how much was everybody else?

Were you really pivotally involved in this or was this really something that you just got carried along with?

Sometimes it feels like the answer has been rehearsed. It’s the correct answer, but when you drill into it, it’s clear that either the initiative isn’t all they said it was or it wasn’t as deep as they said it was or their involvement wasn’t as deep as they said it was. The best way to get through this is with a one-word question: ‘Why?’ ‘Why did you do that?’

You actually can reply with “Why did you do that?” to every subsequent answer, and it’s almost endlessly educational. This addresses the need for depth that growth roles need, but that many interviews often lack.”

8. The Bullshit Test

How do you know someone really knows growth and doesn’t just have a great handle on acronyms?

Growth is a critical role but not one that hiring teams can succinctly test for. That is, you can’t check out someone’s GitHub for growth or decouple what public evidence you find of their work from other situational factors, like a great team, a solid company, or a unique ecosystem opportunity whose bandwagon they jumped onto.

Andrew Chen runs a “bullshit test” to make sure that candidates aren’t merely fluent in blog posts and jargon.

I ask people to get on the whiteboard and draw out the whole thing. For example, I may ask someone “How does YouTube grow?

There, I want to watch you draw out the entire flow for how a user comes into YouTube and how you think it might all work — just from what you’ve observed on the outside. Then I’ll ask you where you might make improvements. I want you to do all of this in real-time with me in the room.

This exercise shows a level of detail and thinking that indicates that you’ve mastered what you’re doing, versus that you’ve read all the blogs. I want to get the sense that your capacity goes beyond knowing the concepts, and that you have a depth of process understanding that you can bring to anything you do next.”

What You Should Ask Your Interviewer (but Probably Aren’t)

“Do you have any questions for me?” is a common wrap-up to an interview session. It’s also its own covert test of your listening skills and the depth of your analytical abilities.

But aside from generalities about company culture, project overviews, and basic metrics, the top candidates for growth roles get under the surface of their opportunity with specific questions for their interviewers.

9. The Trajectory of Growth

The definition of growth or growth team can differ significantly from one business to another. Some growth teams are focused only on driving acquisition into the business while others are making fundamental calls on product strategy and development.

Elena wants to see candidates who are taking a long, non-static view of growth.

Ask, ‘What does growth mean for this company, and what will it mean?’ You need to know whether they are responsible for driving metrics across the rest of the funnel or not, and how they may or may not evolve with the rest of the business.

Ask, ‘How does the growth team actually catch up with the structure of the business as it evolves?’ Many applicants simply want to understand where they’re going to be in a couple of months. This is very short-sighted. It’s not just about growth today, in this place and time; it’s about trajectory.”

10. Probe on Metrics

For growth roles you want to know are you coming in to fix the broken system, or are you coming in to make a good system great?

Understanding the answer to that fundamental question comes down to understanding both the metrics of the business and the culture of the team.

When it comes to metrics, most people simply don’t go far enough into the specifics. Brian Balfour says that’s where great growth candidates stand out.

What does retention look like? What does LTV look like? What are the biggest dropoffs?

If a growth candidate doesn’t ask me those basic question in an interview, I’m shocked.

But then you need to keep going. Keep asking questions about the metrics until your interviewer stops you and says, “It’s too detailed and we can’t give that out in an interview”.

You should get as much information as you possibly can. Not only will you know what type of situation you’re walking into, you’ll also show that you know how to think about growth for that company.”

11. And on Culture

The velocity of growth is determined by one part strategy, one part implementation. Great strategy and promising metrics can still be blocked by cultural issues within the organization; successful growth is technical, but it’s also fundamentally human.

Brian wants to see candidates who seek to understand the relationship between the growth team and other teams: core product, marketing, sales, executive.

Ask, ‘If I wanted to make X type of change in this part of the product, what would the process look like to make that happen?

Follow it with, ‘Would I or my team have our own resources and autonomy to be able to make that change?’

Changes can require negotiation, politics and navigating a number of other ‘people’ steps. You need to pose that same type of situational question to your interviewer that they’re probably asking you: ‘If I wanted to do this we thought if it was a good idea to do this, how would we get this done?’

That gives you a much better idea of how the team works, rather than simply asking them, ‘What’s the process around here?’

You’ll start to realize when they are describing how to get something done that there are certain points where they’ll show discomfort. Those are the areas where there’s friction within the company.

No company is perfect. But, it’s much better to know what the flaws are going into it, rather than being surprised after the fact. That way you can be better prepared and more effective from day one.”

12. 6-Month Roadmap

Being effective in flux starts with having a sense of what’s expected of you in the first six months in a new role. When you’re running weekly experiments or solving previously untackled problems, Andrew Chen says you should ask:

If I were to join, what would I be tasked with achieving in the first 6 months?’ You have to have a good sense for the 6 month roadmap — what you would actually do in terms of experiments and goals — so that you can come in with that from day 1.

13. Growth Resources

There are many different flavors of growth, and resourcing the growth function is a key variable from team to team. Growth has been interesting because there are different flavors of it.

Andrew wants to see candidates ask:

Are there are going to be dedicated engineers? Are there going to be dedicated designers? Or is this a situation where we need someone to kind of think about growth but they’re not part of the product?

14. Low Hanging Fruit, aka How Many Times Has the Homepage Been Optimized?

The best candidates want to understand the potential reaches of their own impact. How wide and deep are the outcomes that are under your purview? Andrew wants to know how much low-hanging fruit already been picked.

Have people been working on growth or really smart people thinking about it?

As a candidate, I would want to ask how many times has the homepage been optimized in the last 6 months, same with landing pages, same with everything. That gives you a sense of the kind of impact that you’ll be able to create.”